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US mortgage firms' shares slump US mortgage firms' shares slump
(about 1 hour 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 as much as 50% in volatile trading in New York amid concerns for their future.
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 could wipe out the value of existing shares.
But the US Treasury said it would back the firms in their "current form".But the US Treasury said it would back 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 US 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. 'Important mission'
Shares in the two firms trimmed losses after US Treasury Secretary Henry Paulson signalled he was not on the verge of taking Fannie Mae and Freddie Mac into public hands.
"Our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," he said.
President George W Bush President Bush was briefed on Fannie Mae and Freddie Mac earlier on Friday.
Mr Bush said Mr Paulson assured him that he and Federal Reserve Chairman Ben Bernanke "will be working this issue very hard".
In early afternoon trading in New York, Freddie Mac shares were down 23% at $6.16 after falling as much as 51% shortly after the market opened.
Shares of Fannie Mae were down 29% at $9.33 after sliding as much as 49%.
'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 Q&A: Freddie Mac and Fannie MaeToday 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 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 chartered, leading many to suggest that the Bush administration will be forced to step in.
'Important mission''Important mission'
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." Mr Paulson responded to media reports that the Treasury was planning some kind of government-led rescue.
Mr Paulson said the Treasury was "maintaining a dialogue with regulators and with the companies". He 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 continued to work with them "as they take the steps necessary to allow them to continue to perform their important public mission".
However analysts were disappointed with his remarks. Analysts said his comments suggested that there would be no sweeping bail-out of the two firms.
"It is designed more to signal policy intent than manage market expectations," said Michael Woolfolk of Bank of New York Mellon. "While Mr Paulson is making supportive comments... there was no suggestion of any imminent bail-out - nor enough specifics to the support they would give," said Bret Barker, portfolio manager at Metropolitan West Asset Management in Los Angeles.
"He left his cheer-leading outfit in the drawer." "The markets were looking for more from Mr Paulson."
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 Mac and Fannie Mae's regulator stressed that the firms were "adequately capitalised".Earlier this week, Freddie Mac and Fannie Mae's regulator stressed that the firms were "adequately capitalised".
This sentiment was also echoed by Mr Paulson and Mr Bernanke in testimony to the US Congress on Thursday.
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.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.