Freddie Mac Paves Way For Major Stock Sale
Saturday, July 19, 2008
Freddie Mac, the troubled mortgage-finance giant, yesterday took a major step toward selling billions of dollars of new stock to the public as a way to bolster its balance sheet.
The action, taken days after the Bush administration moved to prop up the company, comes as Freddie Mac and Fannie Mae, its sister mortgage funder, seek to show that they can stand as independent companies despite weeks of buffeting in the financial markets.
The companies pursue both public and private goals. They are investor-owned, for-profit enterprises but are also federally chartered with a mission of helping people buy homes for the public good.
They benefit by acting as private companies, returning profits to their shareholders and paying their executives well. Yet they are so large and important to the residential mortgage market that they carry an implicit backing by the federal government.
The companies are now campaigning on Capitol Hill to make sure they can maintain that duality despite recent financial reverses. The administration's rescue plan would not make that easy especially if taxpayer money were ever used to fortify the companies.
In exchange for accepting money from the government -- something the companies insist they will not need to do -- Congress is likely to force the companies to relinquish much of their private-sector control. The conditions are likely to include paying off the government before private shareholders and giving federal officials a strong say over how much the companies' executives can be paid.
The companies' leaders say they appreciate the government's promise of financial support in case they have to weather an emergency -- backing that Fannie Mae's chief executive, Daniel H. Mudd, and Freddie Mac chief executive Richard F. Syron have called a "backstop." But they are just as determined to prove that they will never require the assistance.
The government plan is "very helpful in terms of restoring confidence" in the companies, Mudd said Thursday on "The NewsHour with Jim Lehrer." But of the possible loans and purchase of equity in the firms that the plan would permit, he added, "I don't think we'll need it."
Yesterday, Freddie Mac, based in McLean, showed off its private-market bona fides by formally registering with the Securities and Exchange Commission, completing a lengthy process that puts it for the first time on a similar footing with other publicly traded companies. A Freddie Mac spokeswoman, Sharon J. McHale, said completion of the process is a prelude to the company eventually selling $5.5 billion of new shares to the public, an offering it had agreed to make in March at the urging of federal regulators.
The Wall Street Journal reported yesterday that the company might try to raise as much as $10 billion by selling new shares to investors. But McHale called the $10 billion figure "speculation."
"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," McHale added.
Indeed, in its filing with the SEC, Freddie Mac said there is no guarantee it will be able sell shares when it needs to.