Fannie Mae posted a massive and deeper-than-expected quarterly loss, its third straight, prompting it to slash its dividend and set plans to raise $6 billion of fresh funds. Still, executives were cautiously optimistic that the worst of the credit turmoil may have passed. Their comments triggered a big rally.
WTF?
Fannie Mae posted a net loss after payment of preferred dividends of $2.51 billion, or $2.57 per share, for the first quarter. The loss was greater than even the most pessimistic forecast and came on the heels of a record $3.6 billion loss in the fourth quarter of 2007. Fannie Mae's loss and need to raise capital reflect the plight of financial services companies worldwide, which have written off more than $330 billion in soured mortgage securities and raised more than $200 billion to shore up depleted balance sheets. After Fannie Mae announced its capital-raising plans, its regulator said it intended to reduce the amount of surplus capital the company needed to hold, which further boosted optimism about its ability to expand its holdings of relatively cheap mortgage assets and restore profitability. Shares of Fannie Mae rose nearly 7% at $30.11 at midday.
Lowering capital requirements is a terrible idea, in my opinion. I guess the market feels differently. Of course, the market though it was a good idea to pay $330 billion for MBSs and CDOs that turned out to be worthless.
Source: Yahoo
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