Fannie’s capital better than market perceptions: Lehman

Fannie Mae's capital and reserves positions are better than market expectations, according to an analyst at Lehman Brothers, who also said the biggest U.S. mortgage finance company may not need any more externally raised capital.
Fannie Mae should get through this difficult housing cycle with core capital remaining at or above the 15% excess capital requirement, analyst Bruce Harting said in a research note to clients.
"In the event that conditions worsen beyond our forecast, the regulator could lower the excess requirement further, such that the "minimum requirement" again becomes the binding constraint," Harting said.
On Wednesday, Merrill Lynch had said it was premature to consider a recapitalization sponsored by the U.S Treasury for Fannie Mae and its sibling agency Freddie Mac, as capital depletion would not likely occur for several quarters.
Last month, the U.S. Treasury promised to re-finance Fannie Mae and Freddie Mac, which have seen more than 90% of their market capitalization evaporate since January, if either were facing collapse.
The companies have booked blns of dollars in losses so far this year as the U.S. housing market has been hit by a wave of loan defaults and falling home prices.
Lehman's Harting, who more than trebled his 2008 loss-per-share estimate on Fannie to $10.24 a share, said he expected provisions of $10.8 bln at Fannie during the second half of the year — with charge-offs of $5.4 bln — building reserves to $14.4 bln.
Harting said he expected Fannie to have core capital of $42 bln by the fourth quarter plus another $14 bln of reserves.
The analyst cut his price target on the stock to $20 from $46. Shares of Fannie closed at $6.48 Wednesday on the New York Exchange.