FNM WOOOOOF (Issuing new shares+ screwing existing shareholders)

Fannie Mae (FNM 28.29) announced this morning plans to increase its capital position by issuing new shares and cutting its dividend. Though the announcement has a dilutive effect on existing shareholders, the plan should help provide a boon for the housing market in the long-term.

The mortgage lender's revenues climbed 28% year-over-year to $3.78 billion. But Fannie Mae still reported a loss of $2.19 billion, or $2.57 per share, for the first quarter. One year ago Fannie Mae earned $961 million, or $0.85 per share.
The negative results were driven by losses from derivatives and trading securities, which totaled $4.4 billion, as well as credit expenses related to higher charge-offs from defaults and loan losses, which totaled $3.2 billion, according to this morning's edition of The Wall Street Journal.
The mortgage credit book of business grew by 3%, and estimated market share increased to approximately 50% of new single-family mortgage-related securities issued.
Core capital totaled $42.7 billion at the end of the quarter, $5.1 billion above the company's current regulatory requirements.
Fannie Mae announced plans to raise $6 billion in new capital through common stock public offerings, noncumulative mandatory convertible preferred stock, noncumulative, nonconvertible preferred stock. The new capital is intended to enhance the company's balance sheet and provide stability to the secondary mortgage market. By increasing its capital base, Fannie Mae can lend additional funds and also increase its protection against future hiccups in its loan portfolio.
According to the company, the Office of Federal Housing Enterprise Oversight (OFHEO), Fannie Mae's watchdog, would reduce the required 20% capital level to 15% upon completing the capital-raising plan. Fannie Mae also said OFHEO indicated the required capital surplus would be trimmed by an additional five percentage points to a 10% surplus requirement in September 2008, based upon the company's continued maintenance of excess capital above its required level. This, of course, assumes no material adverse changes to the company's ongoing regulatory compliance.
As part of Fannie Mae's capital raise, the company will reduce its quarterly dividend. Beginning in the third quarter, the company will cut its dividend to $0.25 per share from $0.35 per share, which will free an additional $390 million of capital per year.
Separately, Fannie Mae is planning a series of initiatives to provide liquidity, stability, and affordability to the housing and mortgage markets for the long term. The plan intends to keep struggling borrowers in their homes, assist prospective homebuyers, and stabilize communities affected by the mortgage market downturn. Such moves will ultimately help restore the housing market by providing further support to the industry. Such support is essential to helping boost economic health.
--Jeffrey Ham, Briefing.com