Friday, July 18, 2008

Freddie Mac To Paulson: Watch This

Freddie Mac is considering raising capital by selling as much as $10 billion in new shares to investors, according to people familiar with the matter, WSJ is reporting.

Freddie will try an do anything it can to stay free of a tighter Treasury Secretary Henry "Hank is for Hank" Paulson grip on the firm. But, pulling off a $10 billion money raise will be quite a trick. Freddie currently appears to have approximately $16 billion in shareholder equity, while Goldman Sachs is estimating it will need to write-down another $21 billion in mortgage related assets.

Thus, any new stock issued would in essence be, a probably very expensive, call option on the mortgage market.

Of course, if Freddie can't do the raise, the company will find itself in the tight grasp of Paulson, which could mean that Freddie could eventually fall into the hands of future American Oligarch Randal Quarles.

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