Freddie Mac (FRE): Surprise! We're Doing Even Worse Than You Thought

Freddie Mac’s (FRE) blew FQ4 and is slashing its dividend to preserve capital. As its capital ratios get worse, the company has reaffirmed its commitment to raise another $5.5 billion. Trashed CEO Syron, however, doesn’t explain where that money is going to come from.

FRE lost $824 million or $1.63 per share, widely missing the $0.54 per share mean estimate. Freddie also said that it will reduce its dividend from 25 cents to 5 cents. Bloomberg:

Freddie had credit-related expenses of $2.8 billion, double the first quarter, and wrote down the value of subprime and low- quality mortgage securities by $1 billion as the biggest housing slump since the Great Depression increased foreclosures. Freddie Chief Executive Officer Richard Syron is seeking to bolster capital and restore confidence after U.S. Treasury Secretary Henry Paulson was forced to step in with a rescue plan for Freddie and the larger Fannie Mae.

Freddie Mac has lost 76% of its value this year as investors have grown concerned that the government lender doesn’t have enough capital to cover the growing number of defaults and delinquencies on the $2.2 trillion in mortgages it either owns or guarantees. CEO Richard Syron recommitted Freddie to raising the $5.5 billion in capital which it failed to raise earlier this year and raised the posibility of yet another equity raise down the road. Syron:

We remain committed to raising $5.5 billion of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate.

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