Troubled mortgage financier Freddie Mac may sell as much as $10 billion in stock to raise capital and avoid a full scale government bailout, according to a new report from the WSJ.
Last Sunday, Senator Paulson unveiled a three-pronged approach aimed at buoying both Fannie and Freddie after rumors swirled about their solvency, including stronger oversight from the Feds.
But apparently a full blown government takeover isn’t preferred, as the companies are looking to retain their independence, and critics are already arguing that it could cost American taxpayers billions.
Regardless, a stock sale may be hard to come by, and if it is achieved, the terms likely won’t be pristine, considering Freddie had already delayed a proposed $5.5 billion capital raise until after its second quarter release.
Sister Fannie Mae already raised $7.4 billion earlier this Spring, but with shares in the dumps, that task is becoming increasingly difficult for the pair.
Former regulator Armando Falcon Jr. has also raised questions about the financial conditions of the companies, which have steadily seen delinquencies rise and nearly double over the past 12 months.
Per the WSJ, Freddie is also weighing the possibility of scrapping its dividend, which could help the company save roughly $650 million a year.
Either way, it’s clear that the mortgage financier needs to raise capital fast to avoid any further government intervention, which they certainly seem to be looking to avoid.
Shares of Freddie rebounded Thursday, climbing $1.32, or 19.33%, to $8.15, but still remain about 65 percent lower than a month ago.