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Fannie, Freddie Slip After Key Gains
Treasury Secretary Henry Paulson Jr. and officials are weighing factors in determining whether to intervene.
(By Brendan Smialowski -- Bloomberg News)
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"Investors need clarity from Treasury about future [Fannie and Freddie]-related plans, even if it means emphasizing that they do not plan to put funds in," he said. "Staying in limbo does not help."
Treasury officials are weighing several factors in determining whether to intervene. But Treasury Secretary Henry M. Paulson Jr. would not wait until a catastrophic event, such as one of the companies failing in a bid to raise money from the debt markets, according to analysts close to the department.
"As long as the debt market continues to provide financing at a reasonable rate to Fannie and Freddie, it's hard to see how Treasury is going to be compelled to intervene," said Jaret Seiberg, an analyst at the Stanford Group.
Fannie and Freddie's volatile stock prices have caused confusion about the financial stability of the companies, even though the prices themselves do not have a major impact on their operations.
This year, the companies' shares have lost more than 80 percent of their value. The companies' shares rose almost every day for more than a week before falling yesterday.
The pattern has been on display before. When the Treasury announced last month that it would help keep the companies afloat if they were going to fail, their stock prices rocketed up, only to fall sharply in subsequent days.
"We don't have a clear sense yet of what the ultimate losses are going to be. The news has been negative month after month," said Shapiro, of Fox-Pitt Kelton. "It's hard for people to say with any degree of confidence whether they have enough capital to make it through."
