U.S. Stock-Index Futures Jump on Fannie, Freddie Takeover Plan
By Jeff Kearns
Sept. 8 (Bloomberg) --
U.S. stock-index futures rallied on speculation the government's takeover of Fannie Mae and Freddie Mac, the two biggest backers of mortgage loans, will help financial companies weather the subprime mortgage crisis.
Fannie and Freddie, which make up almost half the U.S. home- loan market, were seized after the biggest surge in mortgage defaults in at least three decades, Treasury Secretary
Henry Paulson said in Washington. Both fell more than 80 percent since the start of the year as subprime mortgage defaults caused more than $500 billion in credit market losses among banks worldwide.
``
This is significantly positive for the market,'' said Walter ``Bucky'' Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama, and doesn't own Fannie or Freddie shares. ``Investors were looking for some kind of resolution to the problem and this eliminates a lot of uncertainty.''
Standard & Poor's 500 Index futures expiring in September
gained 30.3 points, or 2.4 percent, to 1,271.4 at 7:27 p.m. in New York. Dow Jones Industrial Average futures rose 237, or 2.1 percent, to 11,464. Nasdaq-100 Index futures rose 37, or 2.1 percent, to 1,807.
U.S. stocks dropped last week, sending the S&P 500 to its steepest weekly retreat in three months, led by commodity producers as falling fuel and materials prices signaled global economic growth is slowing.
Preferred Stock
The Federal Housing Finance Agency will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. 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.
Fannie closed last week at $7.04, up 2.9 percent from a week earlier. Freddie ended at $5.10, up 13 percent on the week.
The yen fell against the dollar and the euro, shoring up investors' appetite for higher-yielding assets funded in Japan. The yen declined to 108.51 per dollar as of 7:37 a.m. in Tokyo, from 107.73 in New York on Sept. 5. The Japanese currency slid to 155.19 per euro, from 153.67 last week.
Futures on the Nikkei-225 Stock Average, the benchmark for Japanese stocks, advanced, climbing 2.7 percent to 12,485 in Singapore.
``The market likes less uncertainty and this takes care of that,'' said E.
William Stone, who oversees $66 billion as chief investment strategist at PNC Wealth Management in Philadelphia. ``If this helps re-stabilize the housing situation it's got to be looked at as a positive.''
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