PIMCO bond guru Bill Gross, appearing on CNBC, says that Fannie Mae (FNM) and Freddie Mac (FRE) will need far more than the $5-$10 billion that most people think they need. Gross thinks the pair will need $40 billion and that if investors are to regain confidence, the Treasury will have to act soon:
“They need to hear not only that [the Treasury] is willing to stand behind Fannie and Freddie but that their money is going to do that,” he said. “In terms of the amount, 15 to 20 billion per institution in the form of preference or preferred stock that hopefully will be at the same level of the existing preferred stock.”
And what does Gross think the common stock is worth? $0:
“At three and four dollars per share respectively, in effect the market is valuing both of these companies at zero,” Gross said. “These are perpetual options at these prices with three to four dollar prices that effectively use a strike price of zero for the common stock.”
Gross said it’s possible the Treasury bailout could put some value on the common stock but “in our opinion, not much.”
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