July 19, 2008 in City

Freddie Mac close to issuing more stock

Company aims to raise $5.5 billion in capital
By STEPHEN BERNARD Associated Press

NEW YORK – Mortgage financier Freddie Mac took a step toward issuing common and preferred stock to help bolster its balance sheet Friday when the Securities and Exchange Commission accepted its registration statement filed earlier in the day.

Freddie has committed to raising at least $5.5 billion in capital amid a turbulent time for it and fellow mortgage giant Fannie Mae. The pair have been hit hard over the past year by mounting losses tied to the downturn in the mortgage market, and the government was forced to step in over the weekend to reassure Wall Street of the companies’ solvency.

Washington-based Fannie Mae raised $7.4 billion earlier this year to strengthen its balance sheet. McLean, Va.-based Freddie Mac had indicated plans to raise $5.5 billion, but has been waiting to initiate the offerings because its stock is not yet registered with the SEC.

“We have committed to (the Office of Federal Housing Enterprise Oversight) to raise $5.5 billion of new core capital through one or more offerings, which will include both common and preferred securities,” Freddie said in a statement. “The timing, amount and mix of securities to be offered will depend on a variety of factors, including prevailing market conditions, and is subject to approval by our board of directors.”

Freddie Mac reported a first-quarter loss in May of $151 million and said it set aside $1.2 billion for losses as a result of rising delinquency rates and falling home prices. Moody’s Investors Service has downgraded Freddie’s financial strength rating, projecting up to $7.5 billion in losses from soured mortgages over the next two years.

The company had been exempted from SEC registration due to its status as a government-chartered company. Freddie had voluntarily proposed to register with the SEC in 2002, but that process was put on hold due to a multibillion-dollar accounting scandal in 2003.

Freddie had to wait until it completed the restatement of financial results to account for the accounting scandal before registering with the SEC. Freddie became up-to-date and current on financial filings earlier this year, paving the way for it to register its stock with the SEC.

The SEC moved quickly to approve the registration Friday afternoon.

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