Renewable Energy

Freddie's Layton: Privatization likely to take several years to complete

It could take four to five years to raise the capital needed to privatize mortgage giant Freddie Mac using a combination of retained earnings and a public offering of stock, Freddie Mac chief executive Donald Layton said on Tuesday.

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ATLANTA, May 21 (Reuters) - It could take four to five years to raise the capital needed to privatize mortgage giant Freddie Mac using a combination of retained earnings and a public offering of stock, Freddie Mac chief executive Donald Layton said on Tuesday.

With a target capital level of $50 billion, Layton said at an Atlanta Federal Reserve conference, "you can talk about a baseline of retained earnings for four or five years and an IPO of some billions to get over the line."

He added it would be hard to accelerate the timeline because of legal and other issues still to be resolved before the company can leave government conservatorship.

"It is a lot of money...You are not going to do this in one week in one go," with the even larger Fannie Mae needing to raise perhaps $75 billion as well, Layton said.

In Freddie's case, he said the company could start raising capital by holding on to retained earnings of about $8 billion annually instead of turning that money over to the U.S. Treasury.

The Trump administration has said it wants to privatize the two mortgage companies, whichh are government-backed entities that were taken into full conservatorship as the U.S. housing market foundered on bad debt during the 2007 to 2009 financial crisis.

A final plan is under development, but administration officials have said establishing an adequate capital base is critical to releasing the companies from conservatorship.

Along with plans for raising cash, Layton said a series of legal issues involving former stock holders and future ones will need to be resolved if the company expects to court private investment.

"It is not clear how this is going to work...Equity investors are going to have this issue front and center," Layton said.

(Reporting by Howard Schneider Editing by Chizu Nomiyama)

((howard.schneider@thomsonreuters.com; +1 202 789 8010;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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