Fannie, Freddie plummet on Treasury plans

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By Emma Moody BLOOMBERG NEWS

U.S. Treasury Secretary Henry M. Paulson Jr. will wipe out shareholders.

Fannie dropped $2.25, or 32 percent, to $4.79 in Wall Street Journal said the Treasury is close to completing a plan to help the mortgage-finance companies. Freddie slumped $1.40, or 27 percent, to $3.70.

The plan may involve a "creative use" of the Treasury's new authority to pump capital into the companies as well as changes to senior management, the Journal reported on its Web site Friday, citing a person whom it didn't name.

"The market prices of these stocks are going down on the notion that the Treasury is going to do something," said New York. "There is reason to be concerned if they do something that hurts investors."

Fannie and Freddie shares had already tumbled more than 80 percent this year, and their debt costs have climbed amid concern they don't have enough capital to weather the biggest housing slump since the Great Depression.

An announcement may come as early as this weekend, the Journal said. Treasury spokeswoman Brookly McLaughlin declined to comment on the contents of the article.

The Treasury hired Morgan Stanley last month to serve as an adviser to the department on potential use of government funds to help the companies, whose shares plunged this year on concern they lack sufficient capital to offset losses.

Mr. Paulson was scheduled to meet Friday with Federal Housing Finance Agency, the Journal said.