Fannie Mae (FNM) And Freddie Mac (FRE) May Take Sharedholers Under

Freddie Mac (NYSE: FRE) has a market cap of about $12 billion. At Fannie Mae (NYSE: FNM) that number is closer to $22 billion. Both company’s stocks are down about 70% from their 52-week highs. The firms suffer from the same subprime-related products that have driven a number of money center banks and big brokerage firms into lamentable shape.

Now, a number of experts think that the growing housing crisis may cause more losses at the two quasi-mortgage agencies. That means they may have to raise more capital.

According to The Wall Street Journal "To put the market’s balance-sheet fears to rest, Fannie and Freddie each may have to issue in excess of $10 billion of new stock this year." That is the tip of the iceberg. The real question is whether they will have to raise additional capital if the housing crisis accelerates in the second half of the year.

At $20, Freddie Mac has already taken a haircut which has severed its neck. A big capital infusion could take the stock below $10. If Wall St. looks at the housing and subprime markets as a falling knife, the FRE shares could move down to $5. Their 52-week high is $68.12.

Douglas A. McIntyre