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By Mike Caggeso
Like several of its ailing peers, Fannie Mae (FNM) reported a wide quarterly loss and stocked its financial armory for continued financial strain with a dividend cut and $6 billion planned in raised capital.
The largest U.S. mortgage-finance company said it lost $2.19 billion, or $2.57 per share, in the first quarter, citing widening of credit spreads, higher-than-expected home price declines and "loan loss severity."
Chief Executive Officer Daniel Mudd was almost defensive in a company statement, mentioning nearly every ailment to the economy before speaking of company results. The statement also said the company expects "housing weakness will lead to increased delinquencies, defaults and foreclosures on mortgage loans."
"Our first quarter results, although an improvement over the last quarter, reflect these challenging market conditions," Mudd said.
To help recover, Fannie cut its divided for the second time this year, to 25 cents a share from 35 cents. Previously, it'd been cut from 50 cents to 35 cents.
Fannie Mae also said it plans to raise $6 billion in capital through stock sales.
But Barclays Capital fixed-income strategist Ajay Rajadhyaksha told Bloomberg that it won't be enough to weather the housing slump should it continue into 2009.
"They are now starting to realize the fact that their credit losses will be considerably higher than they were in 2007," Rajadhyaksha said. "Things in the housing and credit markets are deteriorating very fast and this will not be the last capital raising this year."
Top financials know they're hurting and know there's more pain to come. Write-downs sparked by the subprime crisis have ballooned to $319 billion and led to 65,000 eliminated jobs in the financial industry. But each financial firm has taken measured steps to shield itself from further damage.
After posting a 50% drop in quarterly revenue, JPMorgan Chase & Co. (JPM) added $2.5 billion to credit reserves, including $1.1 billion related to home equity loans.
Washington Mutual Inc. (WM) reported a $1.14 billion first-quarter loss, but a week earlier, the Seattle-based lender announced it raised $7 billion in capital, and would slash its dividend and cut 3,000 jobs.
Merrill Lynch & Co. (MER) announced 3,000 job cuts after it posted a $1.96 billion, or $2.19 a share, loss for the first quarter – its third consecutive quarterly loss.
Likewise, Citigroup Inc. (C) announced it would cut 9,000 jobs this year when it reported a $5.11 billion loss for the first quarter. Since the credit crisis took hold last year, Citigroup has been on the receiving end of massive cash infusions from around the world.
Despite the measures, analysts are equally guarded about financials.
"I'm not sure if I'm more disappointed about the earnings for this quarter or for the [housing] outlook for next year," Charles Lieberman, chief investment officer of Advisors Capital Management, told Reuters, referring to Fannie Mae. "They are clearly still having repercussions from the subprime and market valuation problems."
News and Related Story Links:
- Fannie Mae:
Fannie Mae Reports First Quarter 2008 Results
- Money Morning:
JPMorgan Chase Posts 50% Profit Drop, Predicts "Weak" Markets "Through Remainder of Year or Longer"
- Money Morning:
Merrill Misses Expectations, Thain's Mettle to be Tested