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Tuesday, September 16, 2008

The Markit CDX North America Investment Grade Index climbs 25 basis points

The Markit CDX North America Investment Grade Index, which rises as confidence in companies deteriorates, climbed 25 basis points to a record 220 at 7:50 a.m. in New York, according to broker Phoenix Partners Group. http://www.bloomberg.com/apps/news?pid=20601109&sid=ad5I2uMlzN7o&refer=home

"It's banana republic financing," Lockyer said. The spending plan relies on "phony money and phony estimates." http://blogs.usatoday.com/ondeadline/2008/09/schwarzenegger.html

Fed to give AIG $85 billion loan and take 80% stake

By Michael J. De La Merced and Eric Dash

Wednesday, September 17, 2008

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan. http://www.iht.com/bin/printfriendly.php?id=16217125

The Fed, apparently unable to convince private-sector companies to provide the cash, did the deal itself. That raises the question of whether the financial-services industry really felt that AIG's demise would have been catastrophic. The only alternative explanation would be that Wall Street won a game of chicken with the Fed... http://www.forbes.com/markets/2008/09/16/aig-fed-bailout-markets-equity-cx_mm_0916markets50.html

With time potentially running out due to credit rating downgrades that have threatened AIG's ability to operate, it reportedly reached a deal with the Federal Reserve, gaining an $85 billion bridge loan in return for going into conservatorship, with the Fed taking an 80% stake in the insurer. http://www.forbes.com/2008/09/16/briefing-outlook-aig-markets-equity-cx_ss_0916markets48_print.html

Sunday, September 14, 2008

ISDA reverses 14 trillion in derivatives

http://www.nytimes.com/2008/09/15/business/15lehman.html?_r=1&hp=&pagewanted=print&oref=slogin In one the most extraordinary days in Wall Street's history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

SUNDAY[!]: One of the most dramatic days in Wall Street history...

LIQUIDATE: Banks, Brokerages Prepare for Possible LEHMAN Bankruptcy...
ON THE BRINK...
BARCLAYS Abandons Talks...
BANK OF AMERICA NO LONGER BIDDING...

Feds Balk at putting up taxpayer money...
CEO hubris contributed to meltdown...

LEHMAN NETTING TRADING SESSION PROTOCOL

ISDA confirms a netting trading session is taking place between 2 pm and 4 pm New York time today for OTC derivatives. Product classes involved are credit, equity, rates, FX and commodity derivatives. The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing. Trades are contingent on a bankruptcy filing at or before 11:59 pm New York time, Sunday, September 14, 2008. If there is no filing, the trades cease to exist. These trades are subject to a protocol which is being distributed by ISDA (International Swaps and Derivatives Association). Traders should execute the protocol and email a copy of the signature page to Mark New at ISDA (mnew@isda.org) with LEHMAN PROTOCOL in the subject line. Click here for Protocol Text.

MARKET PARTICIPANTS HAVE INDICATED THAT THEY ARE WILLING TO TRADE UNTIL AT LEAST 6:00 NEW YORK TIME. PARTIES SHOULD COMMUNICATE WITH EACH OTHER AS TO THEIR WILLINGNESS TO TRADE LATER THAN 6:00.

Barclays May Bid for Lehman as Fed Seeks Solution (Update1)

By Ben Livesey and Yalman Onaran

Sept. 14 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, moved closer to making a bid for Lehman Brothers Holdings Inc. as the U.S. government raced to find a solution for the faltering investment bank, two people familiar with the situation said.

Senior executives of major financial-services companies arrived at the New York Federal Reserve building in lower Manhattan this morning to discuss a rescue plan, including Citigroup Inc. Chief Executive Officer Vikram Pandit and Robert Wolf, chairman for the Americas at UBS AG. JPMorgan Chase & Co. sent CEO Jamie Dimon, Investment Bank Co-CEO Steven Black and General Counsel Stephen Cutler.

Barclays's takeover approach depends on whether losses from Lehman's mortgage-related holdings can be sealed off, said the people, who declined to be identified because no formal offer has been made. Bank of America Corp., the biggest U.S. consumer bank, also is among the potential bidders for New York-based Lehman, which has lost 94 percent of its market value this year after record losses from investments tied to mortgages.

``The solution is to force the merger of Lehman now, this weekend, with a big commercial bank,'' said Richard Bove, a Lutz, Florida-based analyst at Ladenburg Thalmann & Co.

Lehman, led by Chief Executive Officer Richard Fuld, may be forced to liquidate unless buyers step up for all or part of the 158-year-old company, U.S. Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner told the heads of Wall Street's biggest firms at a meeting Sept. 12. Paulson has said he's reluctant to use government money to rescue Lehman. Talks with the banks continued yesterday without producing an agreement.

Discussions Continue

``Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow,'' a New York Fed spokesman said.

With backing from the company's board, Barclays President Robert Diamond, 57, is leading a team to review Lehman's books and gauge the level of guarantees the bank would need to cover potential losses, the people said. Peter Truell, a Barclays spokesman, declined to comment.

``Acquisitions are difficult for Barclays because of capital constraints,'' said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a ``reduce'' rating on the London-based bank. Barclays raised 4.5 billion pounds ($8 billion) in a share sale in June to shore up capital depleted by credit losses and increase its securities trading and fund management units in the U.S.

Bad Bank

Geithner, 47, and Paulson, 62, are pushing Wall Street to contribute money to a so-called bad bank that would assume Lehman's $50 billion of devalued real estate assets. That would make it easier for a buyer to take over the rest of the company while the assets are sold off.

The approach is similar to one Lehman presented to investors last week, which the company said would cost $5 billion to $7 billion.

Such an arrangement would be reminiscent of the rescue of hedge fund Long-Term Capital Management LP, which failed in 1998 as Russia defaulted on its debt, roiling global markets. Spurred by the New York Fed, Wall Street firms including Lehman contributed cash to prop up LTCM.

Korea Development

Lehman CEO Fuld, who participated in the LTCM talks and built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the investment bank, was pushed toward a forced sale this past week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.

In addition to Pandit and Dimon, the government met Sept. 12 with CEOs including Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, Merrill Lynch & Co.'s John Thain and Credit Suisse Group AG's Brady Dougan, according to the people, who asked not to be identified because the gathering was private.

Robert Kelly, CEO of Bank of New York Mellon Corp., UBS's Wolf, and Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated, the people said. Bank of America CEO Kenneth Lewis didn't attend because his company is a potential bidder for Lehman, one person said.

Helping lead the discussion was Kendrick Wilson, a former Goldman executive whom Paulson tapped last month as an adviser.

HSBC Holdings Plc, Europe's largest bank by market value, is also considering a bid for Lehman, the Wall Street Journal reported yesterday, without saying where it got the information. Goldman, the largest securities firm, is interested in Lehman's real-estate portfolio, the Journal said.

Goldman's Position

HSBC spokesman Richard Lindsay said the company doesn't comment on market speculation. Goldman spokesman Lucas van Praag also declined to comment.

Paulson, the former chairman of Goldman, doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said Sept. 12.

Unlike when the Fed committed $29 billion to help JPMorgan take over Bear Stearns Cos. in March, Lehman has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.

Paulson stepped in last week to guarantee the debt and mortgage-backed securities of home-loan financing companies Fannie Mae and Freddie Mac.

Fuld May Balk

If the government's resistance to fund the purchase lowers the price offered for Lehman, Fuld could balk as well, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.

``We might have a Mexican standoff, with two guys holding guns to each others' heads but nobody firing,'' Hintz said.

Lehman hired the New York law firm Weil, Gotshal & Manges LLP to advise the company on a potential bankruptcy filing, the Journal reported yesterday, without saying where it got the information.

The government is pushing for a quick resolution because Paulson is concerned panic may spread to other financial institutions, Ladenburg Thalmann's Bove said. American International Group Inc., the largest U.S. insurer, and Seattle- based lender Washington Mutual Inc. each plummeted in New York trading last week on speculation about their financial health.

AIG may move up plans to raise capital or sell assets after the shares plunged 46 percent, according to a person familiar with the company. WaMu, which fell 36 percent, may sell parts of its nationwide bank-branch network to raise cash, according to L. William Seidman, a former chairman of the Federal Deposit Insurance Corp.

Asset Write-Offs

A Lehman sale may be possible without government backing, an analysis of Lehman's distressed mortgage assets shows. In a worst-case scenario -- with the assets discounted more deeply than in recent distressed sales -- a buyer could write off almost half of Lehman's mortgage holdings and still have $7 billion of equity left in company, based on figures the investment bank disclosed when it reported third-quarter financial results last week.

``The firm should be worth something even after the troubled assets are taken out at a massive discount because Lehman has a good franchise,'' said Corne Biemans, a Boston- based senior portfolio manager at Fortis Investments, which oversees about $200 billion. ``There are distressed asset buyers who should be interested in this stuff at such serious haircuts.''

Lehman's mortgage-related assets have been marked down to between 29 cents and 85 cents on the dollar. Reducing valuations further to between 5 cents on the dollar for collateralized debt obligations and 35 cents for European mortgages would result in $21 billion of further writedowns. Shareholders' equity was $28 billion at the end of firm's fiscal quarter in August.

To contact the reporters on this story: Ben Livesey in London at blivesey@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: September 14, 2008 10:15 EDT

Friday, September 12, 2008

Ike looms on Galveston

http://www.cnn.com/2008/US/weather/09/12/galveston.1900/?iref=hpmostpop (CNN) -- The worst weather disaster in American history took place in Galveston, Texas, in 1900 when a hurricane estimated as a Category 4 intensity blew ashore, killing thousands of residents and obliterating the town.

http://news.galvestondailynews.com/story.lasso?ewcd=71b810c50fc1f6c5

http://www.accuweather.com/news-top-headline.asp?partner=accuweather&traveler=0&date=2008-09-12_19:45 A significant part of Galveston Island is inundated, 6 hours before Hurricane Ike is forecast to make landfall near the threatened barrier island. Waters will continue to rise this evening on the barrier island and other coastal areas along the central and upper coast of Texas.

Updated 9/12 2045 EDT. Hurricane Ike's current track currently is headed directly for Houston/Galveston and is expected by the National Hurricane Center to be Category 2 (or perhaps a 3) at a late Friday/early Saturday am landfall, which remains in striking distance of over 5 million bpd of US petroleum refining capacity. (A little perspective: 5 MMBBL is about 30% of US capacity (about 15 MMBBL), and a bit less than 6% of global capacity (~85 MMBBL)). THEOILDRUM.COM

Ike Strikes

http://www.accuweather.com/news-top-headline.asp?partner=accuweather&traveler=0&date=2008-09-12_08:04
The wall of water being pushed through the Gulf Mexico by Hurricane Ike is already flooding Galveston, Texas.

Live News Feeds:

ABC http://abclocal.go.com/ktrk/feature?section=news/local&id=6102015

FOX http://www.myfoxhouston.com/myfox/pages/Home/Detail?contentId=7406837&version=1&locale=EN-US&layoutCode=TSTY&pageId=1.1.1

KHOU http://www.khou.com/video/?nvid=178826&live=yes&noad=yes

Thursday, September 11, 2008

GAS RUN

http://www.citizen-times.com/apps/pbcs.dll/article?AID=200880911105 Emergency chiefs urge halt to local gas run

COLUMBIA, SC (WIS) - The impending landfall of Hurricane Ike has caused issues with the price of gas and limits on the amount you can buy, according to officials. http://www.wistv.com/Global/story.asp?S=8993849

Ike shuts down oil and gas production in the gulf

Energy production in the Gulf of Mexico remained largely shuttered Thursday as energy companies scrambled to complete evacuations and shut down refineries in advance of Hurricane Ike.

Roughly 97 percent of all oil production in the Gulf and 93 percent of all gas production is shut down, according to the Minerals Management Service, the federal agency that oversees drilling. Gulf energy production has not fully resumed since Hurricane Gustav struck Louisiana over a week ago. http://www.nola.com/hurricane-ike/index.ssf/2008/09/energy_industry_scrambles_to_s.html

Wednesday, September 10, 2008

Massive Dollar Short Opportunity

One way or another, the dollar is going down. Hold on to your shorts because this will be the short of the decade.

Recent interventions in commodity markets, which has been a combination of short selling in the Gold market, and large institutions taking profit in a multi-year bull market in hard commodities such as Oil, has caused a short uptick in the dollar. The fed didn't raise interest rates, and US economic data did not get any better. Nor was there any watershed event or even a clear indication that the US economy is improving. There is no other reason the dollar is up, other than the previously mentioned factors. 34% of the world's wealth (calculated in dollars) is still USD based, so any sell off in stocks, commodities, and bonds (meaning a return to cash) means a boon for the USD.

This trade will be a long term play and should not be taken with large leverage unless you are a day-trader who will be in and out of the markets. There is an overwhelming amount of negative data supporting the argument for USD down, so let's examine what could potentially cause the USD to rise, which we shall consider as USD down trade exit strategies.

What can change this trade (stop loss / exit points) can be the following unlikely scenarios:

Fed raises interest rates
ECB cuts rates (unlikely because unlike the Fed, the ECB only mandate is to contain inflation)
US Economy not only bottoms but shows signs of rapid growth (a bottom would not cause the dollar to rise without an increase in rates)

Anyone who previously thought it somehow negative to promote the shorting of the dollar should be silenced with Treasury's recent move, a message to the world saying that the US Government will backup free market capitalism with state sponsored socialism for the rich. None of these actions can possibly be good for the dollar in the long term. In the short term, as we see the Euro-bubble collapse, it is possible for the USD to rise slightly, but this should not be a prolonged trend. Euro weakness does not necessarily make a strong dollar, world markets are desynchronized and interest rate parity theory has stopped working years ago.

How to short the dollar?

Long term close your eyes trade; sell now with no stop loss and take profit at USD Index 65.
Short term automated trading systems with Sell USD bias. Tweak your systems to find USD short trends and take profits (systematic day trading)
Non-USD portfolio (European/Asian bonds / equities)
Long Swiss Francs or CHF based bonds

There may be a time when investment in the USD will be the trade, when once again foreign investors will flock to USA as a beacon of capitalism (meaning the ability to make money, which is restricted in many countries by strict government controls and the threat of potential nationalizations). Now is not that time.

http://eliteeservices.net/ Elite E Services FX Systems See more articles at www.eliteforexblog.com

Tuesday, September 9, 2008

Hedge funds - the daredevils of Wall Street - are backing away from risk

September 9, 2008 --

Hedge funds - the daredevils of Wall Street - are backing away from risk, fearful of getting beaten up by the market's persistent turbulence.

JPMorgan Chase's Highbridge Capital and Phil Falcone's Harbinger Capital are among a growing number of big-name hedge funds that are hunkering down, moving into cash and reducing the use of borrowed money, or "leverage," to inflate returns, sources said. http://www.nypost.com/php/pfriendly/print.php?url=http://www.nypost.com/seven/09092008/business/hedge_hogs_hunker_128180.htm

Sunday, September 7, 2008

Paulson Engineers U.S. Takeover of Fannie, Freddie

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY5djDWqugYk&refer=home

Paulson Engineers U.S. Takeover of Fannie, Freddie (Update4)

By Rebecca Christie and Dawn Kopecki

Sept. 7 (Bloomberg) -- The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market.

``Our economy and our markets will not recover until the bulk of this housing correction is behind us,'' Treasury Secretary Henry Paulson, who engineered the takeover along with Federal Housing Finance Agency Director James Lockhart, said in Washington today. ``Fannie Mae and Freddie Mac are critical to turning the corner.''

The FHFA will take over Fannie and Freddie under a so- called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury can purchase up to $100 billion of a special class of stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.

The takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back under the government's fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.

Treasury Gets Stock

Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on its stake.

As a condition for the assistance, Fannie and Freddie eventually will have to reduce their holdings of mortgages and securities backed by home loans.

The portfolios ``shall not exceed $850 billion as of Dec. 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion,'' the Treasury said. Fannie's portfolio was $758 billion at the end of July, and Freddie's was $798 billion.

Officials are aiming ``to prevent the mortgage market from falling apart,'' said former Federal Reserve Bank of St. Louis President William Poole. The Treasury's funds ``will be flowing in for quite a long time,'' Poole, a Bloomberg contributor, said on Bloomberg Radio.

Herbert Allison, 65, former chief executive officer of TIAA-Cref, will take over as Fannie's new CEO. David Moffett, 56, who was vice chairman of US Bancorp, will head Freddie, Lockhart said. They will work with existing management, he added.

Mudd, Syron Exit

Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64, will serve in a transition period as consultants.

``Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth,'' President George W. Bush said today in a statement released by the White House.

``The actions taken today are temporary,'' Bush said. As the administration considers the companies' future role, ``it is critical that they not pose similar risks to our economy and to our financial system again.''

While common stockholders of Fannie and Freddie won't be eliminated under the conservatorships, they will be last in line for any claims, Paulson said. Preferred shareholders will be second in absorbing losses, he said.

`Restoration Plans'

Banks and insurance companies have typically purchased the two companies' preferred shares. The Federal Reserve and three other bank regulators said that they will work to ``develop capital restoration plans'' with the ``limited number'' of smaller institutions that hold Fannie and Freddie stock as a significant portion of their capital.

By ensuring that Fannie and Freddie maintain positive net worth, the Treasury will provide ``additional security'' to the owners of Fannie and Freddie bonds and ``additional confidence'' for the holders of their mortgage-backed securities, it said. The Treasury noted that Fannie and Freddie securities are held by central banks and ``investors around the world.''

Lockhart added that interest and principal payments will continue to be made on the companies' subordinated debt.

The government is taking an increasing role in financial markets, after the Fed six months ago provided $29 billion of financing to prevent Bear Stearns & Cos.'s collapse. Chairman Ben S. Bernanke praised today's action in a statement.

`Inherent Conflict'

The plan doesn't answer all of investors' questions about the companies' long-term prospects. It also doesn't address the question of whether the companies will be nationalized, privatized, or kept as government-sponsored enterprises that are shareholder owned. Paulson said that ``only Congress'' can tackle the ``inherent conflict'' of serving shareholders and a public mission.

``Keeping them alive is the wrong approach,'' said Peter Wallison, a fellow at the American Enterprise Institute in Washington and a former Treasury general counsel. ``They need to be sustained, they're essential to financing housing right now. But it doesn't mean that they have to be maintained as GSEs.''

Wallison added that if Fannie and Freddie return to profitability, ``then what the shareholders have is worth something.''

Lobbying Ban

Congress has long avoided making major changes to the two companies, which have had extensive lobbying operations. Lockhart said today that those operations will cease.

``All political activities -- including all lobbying -- will be halted immediately,'' Lockhart said. ``We will review the charitable activity.''

Democratic presidential nominee Barack Obama said today that ``some'' intervention was necessary to prevent a ``larger and deeper crisis,'' while adding that the ultimate resolution of the firms' status will need to be addressed.

Free-marked advocates such as former Fed Chairman Alan Greenspan and Richmond Fed President Jeffrey Lacker have called for the two companies to be split up and sold off.

``Debt holders still face uncertainty, especially regarding what happens in 2010 and what is the business plan going forward,'' said Eric Johnson, president of Carmel, Indiana-based 40/86 Advisors Inc., which manages $25 billion in fixed-income assets.

$5 Billion Purchase

Starting with a $5 billion purchase this month, the Treasury will buy new mortgage-backed securities from the two companies, in an effort ``to broaden access to mortgage funding for current and prospective homeowners,'' according to the Treasury.

The Treasury will hire independent asset managers to purchase and run the portfolio of mortgage-backed securities it will buy. ``There is no reason to expect taxpayer losses from this program, and it could produce gains,'' the department said.

For Bill Gross, manager of the world's biggest bond fund at Newport Beach, California-based Pacific Investment Management Co., today's announcement was good news.

``We own lots of mortgage-backed bonds, and I would expect on Monday and in the ensuing weeks for them to do very well,'' Gross said in a Bloomberg Radio interview. ``So yes, I'm smiling at the moment.''

Inflated Capital

Paulson's decision, taken after consulting with Bernanke, followed a review that found Washington-based Fannie and McLean, Virginia-based Freddie used accounting methods that inflated their capital, according to people with knowledge of the decision.

Paulson, 62, hired Morgan Stanley a month ago to probe the companies' finances. The investment bank concluded that the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings were confidential.

Robert Scully, an adviser to Morgan Stanley CEO and Chairman John Mack, and Ruth Porat, head of global financial institutions, led a 39-person team at the investment bank that explored a range of alternatives for Fannie and Freddie.

Morgan Stanley, officials and regulators determined it was too risky for the companies to try to raise money themselves, because of the losses on many private capital injections in the past year, two people involved in the discussions said. They also deemed a Treasury capital infusion without a government takeover as too risky for taxpayers, the people said.

No End Date

The FHFA will aim to ``preserve and conserve'' the companies' assets and property and put them ``in a sound and solvent condition,'' according to a fact sheet distributed by the Treasury. There is ``no exact time frame'' for when the conservatorship will end, the statement said.

Fannie and Freddie own or guarantee almost half of the $12 trillion in U.S. home loans and the government had been leaning on the companies to help pull the economy out of the housing crisis.

Concern over the companies' capital pushed their borrowing costs to record levels over U.S. Treasuries, sent their common and preferred stocks tumbling and boosted mortgage rates. Fannie is down about 66 percent in New York Stock Exchange trading since the end of June. Freddie has fallen about 69 percent.

Paulson briefed Republican presidential candidate John McCain, Obama, and the Democratic and Republican leaders of the House and Senate. Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank and their Republican minority counterparts were also informed.

Congressional Reaction

``Paulson has threaded the needle just right by taking necessary action to stabilize U.S. financial markets while minimizing the liability for taxpayers,'' Democratic Senator Charles Schumer of New York, who heads the congressional Joint Economic Committee, said in a statement. ``This plan will be met with broad acceptance in Congress because it doesn't prejudge the ultimate fate of Fannie Mae and Freddie Mac.''

Other congressional statements indicated hearings are likely as soon as this week.

Fannie was created by the government in 1938 as part of President Franklin D. Roosevelt's New Deal. Freddie was chartered in 1970 to compete with Fannie.

As losses on the mortgages grew late last year, the companies recorded $14.9 billion in combined net losses, eating into their capital. Fannie raised $14.4 billion since November and Freddie sold $6 billion of preferred securities. Plans for a $5.5 billion sale were delayed as the company's fortunes sank.

Required By Regulator

Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Fannie's market capitalization is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

Bernanke participated in the meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as last week as part of a quarterly appraisal of their finances.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net

Last Updated: September 7, 2008 17:23 EDT