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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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From: CalculatedRisk	12/23/2004 7:39:43 PM
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Fresh blow for Fannie as Fitch lowers rating By Jenny Wiggins in New York Published: December 23 2004 19:37 \| Last updated: December 23 2004 19:37 Fannie Mae's credit ratings on its preferred stock were lowered on Thursday by Fitch Ratings amid concern that the mortgage finance provider might be unable to pay dividends next year because of its pending financial restatement. The downgrade, which affects some $4bn of preferred stock, will make it more expensive for Fannie to raise money in the capital markets if it sells preferred stock to help meet its new capital requirements. Fannie's stock fell 1.9 per cent on Thursday to $70.55, underperforming the S&P 500 Index and erasing most of the gains made on Wednesday following news that Franklin Raines, the company's chief executive, had been ousted. The financial restatement, which has been ordered by the Securities and Exchange Commission, will lower Fannie's core capital, putting the company in breach of its capital requirements. On Tuesday, the Office of Federal Housing Enterprise Oversight said Fannie was “significantly undercapitalised” by some $3bn. Regulators require the mortgage finance provider to hold a certain amount of capital to ensure its financial soundness. On Thursday, Fannie said that the Office of Federal Housing Enterprise Oversight had approved the payment of preferred stock dividends due on December 31. But it said the regulator had not approved dividend payments for forthcoming quarters, and that Ofheo would review requests for payments based upon “the facts and conditions existing at the time”. Fannie may need to suspend its dividend payments to help raise the billions of dollars in extra capital required by its regulator. This could make its stock less popular with investors. The company must come up with a plan on how to raise the additional capital by June. One option is to liquidate some of its large mortgage portfolio. Fitch on Thursay dropped Fannie's preferred stock ratings one notch to A+, and said they could be downgraded “materially” if Ofheo forces the company to stop paying dividends. The ratings agency also said it believed ongoing investigations into Fannie may uncover “additional accounting deficiencies”. Fannie's AAA senior unsecured debt rating was unaffected by Thursday's actions. news.ft.com

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