Wednesday, December 5, 2007

Fannie Mae Will Cut Dividend, Too

Fannie Mae announced that it will cut its quarterly dividend by 30% from 50 cents to 35 cents a share, beginning the first quarter of 2008. In an attempt to raise capital, the company is planning to issue $7 billion of non-convertible preferred stock this month. The announcement comes after similar moves by sister company Freddie Mac, which issued $6 billion in preferred shares last month. Demand for Freddie stock was 5 times greater than the total amount of stock issued, according to the mortgage giant. Freddie Mac posted a loss of $1,5 billion, and Fannie took a $2 billion hit in the third quarter.

Fannie Mae said its 2008 financial results will probably be disappointing, due to turmoil in the housing markets. Shares dropped 3% on the news. Analysts believe the two GSEs may face significant losses related to subprime and Alt-A securities in the months to come. Unlike many banks, Fannie and Freddie have so far avoided large writedowns, but they are not immune to losses.

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