Fannie Mae Extends Decline to 19-Year Low in Pre-Market Trading

By Cecile Gutscher and Shamim Adam

Aug. 19 (Bloomberg) -- Fannie Mae fell to the lowest in 19 years amid concern the U.S. government will need to bail out the nation's biggest mortgage finance company. Freddie Mac rose.

Fannie fell 2.5 percent to $6 in pre-market trading at 8 a.m. in New York, extending a 22 percent drop in New York trading yesterday. Fannie fell as much as 3 percent in earlier trading in Frankfurt. Freddie Mac rose 1.3 percent to $4.45 after sliding 25 percent yesterday to the lowest since January 1991.

``They need to be nationalized,'' Kenneth Rogoff, a former chief economist at the International Monetary Fund said in an interview in Singapore today.

Barron's reported Aug. 16 that the Bush administration anticipates the government-chartered companies will fail to raise the capital they need to offset losses, leading Treasury Secretary Henry Paulson to exercise the authority granted to him last month to fund the companies if needed.

``Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds,'' said Rogoff, now a professor of economics at Harvard University who left the IMF in 2003. ``The equity holders should lose all their money. We should gradually break up the businesses and at least make part of them private. We may need to keep a nationalized part of them for a long time.''

The mortgage-finance companies have been battered by record delinquencies and rising losses amid the worst housing slump since the Great Depression, posting four straight losses totaling $14.9 billion. Washington-based Fannie has lost about 85 percent of its market value this year, while McLean, Virginia-based Freddie has lost 87 percent.

Fannie Mae has raised $14.4 billion in new capital since December to offset credit losses. Freddie Mac, which sold $6 billion in preferred stock in November, plans to raise an additional $5.5 billion, it said in May.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.netShamim Adam in Singapore at sadam2@bloomberg.net.