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US mortgage firms' shares slump US mortgage firms' shares slump
(20 minutes later)
Shares in US mortgage firms Freddie Mac and Fannie Mae have fallen by more than 40% in early trading amid concerns for the future of the companies.Shares in US mortgage firms Freddie Mac and Fannie Mae have fallen by more than 40% in early trading amid concerns for the future of the companies.
Investors are concerned that the government may have to step in to rescue them, a move that would wipe out the value of existing shares.Investors are concerned that the government may have to step in to rescue them, a move that would wipe out the value of existing shares.
But the Treasury said it would support the firms in their "current form".But the Treasury said it would support the firms in their "current form".
The companies are behind half of all US mortgages and have been hard hit by the slowdown in the housing market.The companies are behind half of all US mortgages and have been hard hit by the slowdown in the housing market.
The two companies play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.The two companies play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.
As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.
Freddie Mac shares fell $4.03, or 50%, to $3.97, at the start of trading. Shares of Fannie Mae fell $6.09, or 46%, to $7.11.Freddie Mac shares fell $4.03, or 50%, to $3.97, at the start of trading. Shares of Fannie Mae fell $6.09, or 46%, to $7.11.
'Unthinkable''Unthinkable'
There has been a sense of unfolding crisis surrounding the companies this week according to the BBC's New York Business Correspondent Greg Wood.There has been a sense of unfolding crisis surrounding the companies this week according to the BBC's New York Business Correspondent Greg Wood.
Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission Treasury Secretary Henry Paulson Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission Treasury Secretary Henry Paulson class="" href="/1/hi/business/7502310.stm">Q&A: Freddie Mac and Fannie Mae
He added that it would be unthinkable that they could be allowed to fail.He added that it would be unthinkable that they could be allowed to fail.
While no longer government owned, Fannie Mae and Freddie Mac are government sponsored, leading many to suggest that the Bush administration will be forced to step in.While no longer government owned, Fannie Mae and Freddie Mac are government sponsored, leading many to suggest that the Bush administration will be forced to step in.
"I think everybody's just holding their breath in expectation that something substantive from the government will happen today or over the weekend," said Karen Shaw Petrou from Federal Financial Analytics in Washington.
'Important mission''Important mission'
In response to reports that the Treasury was planning some kind of government-led rescue, Treasury Secretary Henry Paulson said: In response to reports that the Treasury was planning some kind of government-led rescue, Treasury Secretary Henry Paulson said: "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission."
"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission."
Mr Paulson said the Treasury was "maintaining a dialogue with regulators and with the companies".Mr Paulson said the Treasury was "maintaining a dialogue with regulators and with the companies".
He stressed that their regulator continues to work with them "as they take the steps necessary to allow them to continue to perform their important mission".He stressed that their regulator continues to work with them "as they take the steps necessary to allow them to continue to perform their important mission".
On Thursday, Mr Paulson and Federal Reserve Chairman Ben Bernanke stressed that the two firms were "adequately capitalised". However analysts were disappointed with his remarks.
"It is designed more to signal policy intent than manage market expectations," said Michael Woolfolk of Bank of New York Mellon.
"He left his cheer-leading outfit in the drawer."
Following Mr Paulson's remarks, Fannie Mae shares were trading 35% lower and Freddie Mac's shares were 40.5% down.
Earlier this week, Freddie Mae and Fannie Mac's regulator stressed that the firms were "adequately capitalised".
The Office of Federal Housing Enterprise Oversight said they had large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.