US mortgage giant Freddie Mac may attempt to raise capital by selling up to US$10 billion in new shares after its stock rebounded this week, the Wall Street Journal reported yesterday.
The move under consideration could help avoid a full-fledged government rescue as proposed by the US Treasury Department, at least in the short-term, the paper said.
The primary buyers for a new stock issue would probably be existing shareholders, the Journal reported, citing “one person involved in the discussion.”
A specific plan has yet to be determined, the source told the paper.
The proceeds of any sale would likely be in the range of US$5 billion to US$10 billion, the newspaper wrote, citing unnamed sources.
When asked about the possible share offer, Richard Syron, chief executive of Freddie Mac, told the Journal: “We’re considering the full array of options before us ... We’re not at the stage of talking about the exact when.”
As for the company’s current liquidity position, Syron said: “We have enough liquidity to last well into 2010.”
Freddie Mac and Fannie Mae underpin nearly half of all US mortgages at a value of US$5 trillion. Both companies’ stocks plunged last week amid fears the two firms would be hard-pressed to cover mortgage losses fueled by defaults by homeowners.
To shore up confidence in the two pillars of the housing market, the Treasury over the weekend proposed an unprecedented credit line to both companies and to buy stock if necessary.
The board of Freddie Mac met on Thursday to review the possibility of selling shares, reflecting the desire to avert additional regulation and restrictions that are expected to accompany any government rescue plan, the Journal said.
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