|Fannie Mae Posts Fourth Straight Loss, Cuts Dividend (Correct)|
By Dawn Kopecki
Aug. 8 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage- finance company, sliced its dividend after posting its fourth straight quarterly loss and cut its dividend as record delinquencies pushed up credit costs.
The second-quarter net loss was $2.3 billion, or $2.54 a share. Before a one-time gain, the loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey. The common-stock dividend will be cut to 5 cents from 25 cents a share, Washington-based Fannie said today in a regulatory filing.
Fannie's results come two days after Freddie surprised investors with a loss that was three times wider than analysts anticipated and said the worst housing slump since the Great Depression is deepening. Fannie and Freddie plunged more than 80 percent in New York trading this year on concern they may not have enough capital to withstand record foreclosures on the $5.2 trillion of mortgages they own and guarantee. Freddie's loss increased speculation that U.S. Treasury Secretary Henry Paulson may use his new powers to pump capital into one or both companies.
``Neither of these companies have properly provisioned for what we're heading into,'' said Paul Miller, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia, who has an ``underperform'' rating on both companies. ``This thing is going to get worse and last longer and deeper than they originally thought.''
Both companies will need to raise as much as $15 billion, Miller said.
Fannie reported net income of $1.95 billion, or $1.88 a share, in the same quarter a year ago.
Fannie Chief Executive Officer Daniel Mudd, 49, has raised $14.4 billion since late last year, though still failed to quell concerns that the company is short of capital. As worries escalated, he dispatched executives to Asia to calm investors.
Fannie, down 27 percent since Freddie's earnings release on Aug. 6, declined $1.65 to $9.95 in New York Stock Exchange composite trading yesterday. McLean, Virginia-based Freddie fell 27 percent in two days and declined 60 cents to $5.89 yesterday.
Freddie CEO Richard Syron, 64, this week said the company is waiting for a more ``propitious time'' to sell the $5.5 billion in stock it had agreed to offer in May. Freddie said it will cut its dividend at least 80 percent and may slow purchases of mortgages to shore up capital.
Fannie halved its dividend in two cuts since December, reducing it to 25 cents from 50 cents.
``The one advantage that Fannie has it that it did raise capital when the window was open to them,'' Joshua Rosner, an analyst at Graham Fisher & Co. in New York, said in an interview with Bloomberg Television.
Fannie and Freddie, government-chartered enterprises created to boost mortgage financing, own or guarantee 42 percent of the $12 trillion U.S. home loans outstanding. They make money by holding mortgage assets that yield more than their debt costs, and by guaranteeing bonds they create out of loans.
``Fannie Mae will be marginally profitable in the back half of this year and in 2009,'' said Credit Suisse Group's Moshe Orenbuch, the top-ranked analyst covering the company. Orenbuch, based in New York, has an ``underperform'' rating on Fannie and Freddie.
The companies are stumbling just as the government is leaning on them to revive the housing market and keep the economy out of recession.
Paulson last month received authority for his plan to buy unlimited equity stakes in the companies and extend them financing if needed to help bolster confidence in the companies.
Bill Gross, manager of the world's biggest bond fund and Pacific Investment Management Co., said the Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac.
Almost one in every 10 mortgages in the U.S. was in trouble during the first quarter, the highest in records dating to 1979, according to the Mortgage Bankers Association in Washington. Delinquencies, or home loans with payments 30 days or more overdue, rose to 6.35 percent of outstanding mortgages and the share of homes in foreclosure rose to 2.47 percent.
Freddie revised its forecast for housing price declines to a drop of as much as 20 percent from a previous estimate of 15 percent and said the number of properties it has in foreclosure rose to 22,000, the most since it was created in 1970 during the Vietnam War.
Freddie has about $25 billion and Fannie has about half that in potential losses from those securities that the companies say are ``temporary'' because they assume they will recoup the investment once it matures, Orenbuch estimates. Many of those losses may never be recovered, he said.
To contact the reporter on this story: Dawn Kopecki in Washington at firstname.lastname@example.org
Last Updated: August 8, 2008 07:56 EDT