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Monday, July 7, 2008

IndyMac: Failure by Friday? Fannie, Freddie: We Need Capital!

IndyMac Cuts Half its Staff as Mortgage Losses Mount (Update1): " IndyMac Bancorp Inc., battered by the mortgage crisis, will cut more than half its workforce and said it's been unable to raise new capital as losses mount.

IndyMac will slash its workforce by 53 percent to 3,400 employees and curtail lending, the Pasadena, California-based company said on its Web site. Regulators have advised IndyMac that it's no longer ``well capitalized'' and the bank said that it will report a wider loss in the second quarter than in the previous period.

"We don't expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets,'' Chief Executive Officer Michael Perry said in the statement.

IndyMac, which was the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the prior three quarters amid tumbling home prices and record foreclosures. The company is focusing on mortgages that can be sold to government-sponsored Fannie Mae and Freddie Mac."

What's the over-under on 'Failure by Friday'?

I really enjoy that last line: "The company is focusing on mortgages that can be sold to government-sponsored Fannie Mae and Freddie Mac."

Fannie Mae (FNM)... where did I hear that name today? Oh yeah... that's right!

Freddie Mac, Fannie Mae Plunge on Capital Concerns (Update4): "Freddie Mac and Fannie Mae fell to the lowest in 13 years in New York Stock Exchange composite trading as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.

Freddie Mac fell 18 percent and Fannie Mae dropped 16 percent after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York."

At one point FNM was down almost 30% intraday.

So let me get this straight, the big plan over at IndyMac (IMB) is to emphasize loans that Fannie and Freddie are able to buy? So the big master plan is to accelerate the concentration of all mortgage risk in two already stressed institutions?

"Freddie Mac fell $2.59 to $11.91 after earlier dropping as low as $10.28. Fannie Mae declined $3.04 to $15.74 and earlier fell to $14.65.

The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today.

Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote.

The companies will probably get an exemption from the rule because it would be "very difficult" for them to raise that amount of capital, the analysts said."

Difficult? Try impossible. Either way, common shareholders of FNM and FRE are dead. Raising the capital would result in a massive dilution. Not raising capital will result in the eventual failure and nationalization.

I'll say it again, MBIA and Ambac are Dead, Fannie Mae and Freddie Mac are Next. I described how Using Fannie Mae and Freddie Mac as Disaster Insurance (Update1) was cheap and easy. Because of Fannie and Freddie, The Bank and Mortgage Index: Nothing But Trouble.

This is how I feel about Fannie Mae (FNM) and Freddie Mac (FRE):
Sarcastic Rant on Fannie and Freddie
Fannie Mae, Freddie Mac: The Dumbest Idea Ever .


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