Freddie Mac Mulls $10 Billion Share Sale, WSJ Says

By David Altaner and Bei Hu

July 18 (Bloomberg) -- Freddie Mac may raise as much as $10 billion by selling new shares to investors, the Wall Street Journal reported, citing people familiar with the situation.

The government-backed U.S. mortgage finance company's plan to raise cash, which comes after regulatory actions spurred a two-day recovery in its shares, might avoid an immediate government rescue and stricter oversight that would come with such a bailout, the newspaper said.

Freddie Mac and Fannie Mae, its sister company, own or guarantee about $5.2 trillion of home mortgages, nearly half of those outstanding in the U.S. Goldman Sachs Group Inc. analysts estimated that Freddie Mac faces $21 billion of default-related losses, and Fannie Mae $32 billion, the report said.

``They would have to sell new shares if they were to raise the capital they need immediately,'' said Mo Jae Sung, who helps manage the equivalent of $1 billion at Hanwha Investment Trust Management Co. in Seoul. ``If the government were to buy those new shares, it would deepen moral hazard and that's not healthy.''

Both companies' share prices plummeted about 45 percent last week amid concerns about whether they had enough capital to cover mortgage losses. It prompted the Treasury Department to unveil a plan July 13 to temporarily extend an unspecified line of credit to both companies and may buy stock in them if necessary, a proposal that has met opposition in the legislature.

Freddie Mac's board met Thursday to review various options for selling new shares, including a possible rights offering targeting existing investors. The sale may fetch $5 billion to $10 billion, the report said, citing people close to the discussions whose names it didn't identify.

Freddie Mac Chief Executive Officer Richard Syron has been talking to investment bankers from Goldman Sachs and Morgan Stanley and called two board meetings this week, the report said. Main buyers in any new share sale by the company will likely be existing shareholders.

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.netBei Hu in Hong Kong at bhu5@bloomberg.net