Freddie Mac shares slump; Hanover misses dividend; Countrywide stock dives on bankruptcy rumors

By Sheri Kasprzak

New York, Nov. 20 - After suffering its largest quarterly loss ever, Freddie Mac is on a search for new cash, and the news sent shares of the home loan guarantor down almost 30%.

"There's talk that they may cut their dividend [for the fourth quarter] in half," said one sellside trader. "It's a serious problem. Investors are still really wary of anyone involved in home loans so it will probably be very difficult for them to raise the kind of money they're looking to raise."

Even so, Freddie Mac said it has hired Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. to help it raise capital.

More losses are expected for the fourth quarter, according to Freddie Mac executives.

Another company in the mortgage sector - Hanover Capital Mortgage Holdings, Inc. - said Tuesday it will not be paying its third-quarter dividend payments.

In other mortgage lender news, Countrywide Financial Corp.'s stock continued to slide on Tuesday on rumors that the company may file for bankruptcy.

Shares were off 2.74% after sliding more than 15% during the session, dipping to a 52-week low at one point. The shares closed down 29 cents to end at $10.28. The stock traded in a range of $8.21 to $11.09 for the day.

"They can't seem to catch a break," said one sellside trader. "Would it surprise me if they filed for bankruptcy? No, not really. I'm not convinced that they will, but in this environment, it really wouldn't come as a shock. They have had a lot of trouble, so anything is possible."

Countrywide tried to assuage investors' fears on Tuesday, claiming that it has plenty of capital.

In other news, United Rentals, Inc. sued this week to force affiliates of Cerberus Capital Management, LP to complete their planned $4 billion buyout.

RAM Holdings, Inc. and RAM Acquisition Corp. shot back, claiming that United Rentals was not completely forthright in its legal filings and that Cerberus obtained the right to withdraw from the transaction.

Shares of United Rentals fell by 2.09% on Tuesday.

Elsewhere, shares of EchoStar Communications slid on Tuesday, a day after the company's shares jumped more than 19% on rumors that AT&T will buy the satellite television company in a year's time.

"I generally don't put much credence in moves based on rumors," said one sellside trader. "However, I really think there's reason to believe this will get done. From what I've heard, probably in a year or so. We'll see what happens, but it seems like a great opportunity for them [EchoStar]."

On Tuesday, shares of EchoStar closed down 8.95%, or $4.25, to end at $43.25 (Nasdaq: DISH).

Freddie Mac looks for cash

Home loan guarantor Freddie Mac lost $2 billion in the third quarter, sending shares of Freddie Mac plummeting $10.76, or 28.69%, to end at $26.74 on Tuesday (NYSE: FRE). The stock gained 46 cents after the market closed.

Executives at the home loan guarantor said the outlook is also pretty grim for the fourth quarter.

Nevertheless, the company has retained Goldman and Lehman to help it raise money.

Hanover to miss dividend payment

Shares of Hanover Capital Mortgage slipped by 15.73%, or 14 cents, to close at $0.75 (Amex: HCM).

Hanover reported a net loss of $31.7 million for the quarter ended Sept. 30 and said shareholders will not receive a third-quarter dividend payment.

"The company's board did not declare a third-quarter dividend due to the continued uncertainties in the mortgage industry, the current interest rate environment and our net loss for the quarter," said John Burchett, Hanover's CEO, in a statement.

Burchett went on to say, in the statement, that even though the company has taken large non-cash write-downs against the fair value of its subordinated mortgage-backed securities, the company's portfolio continues to perform well.

"The $42 million impairment expense taken on the subordinate MBS portfolio in the first nine months resulted in a $4.85 per share decrease in the company's book value," Burchett said. "This write-down was taken based on estimated fair value as of Sept. 30, 2007, when the market for this type of asset was basically not trading. While management of the company is unable to predict if and to what level these markets may improve, to the extent that they do improve, in the future, a portion of the resulting decline in book value could be reversed."

RAM responds to United Rentals' lawsuit

RAM Holdings and RAM Acquisition, two affiliates of Cerberus, accused United Rentals this week of not being fully honest in its legal filings. United Rentals has filed a lawsuit against Cerberus for backing out of the $4 billion merger agreement.

Shares of United slipped by 47 cents, or 2.09%, on Tuesday to close at $22.03 (NYSE: URI). After hours, the stock gained 28 cents.

"The fact is that RAM negotiated for and obtained the right to withdraw from the merger agreement of July 22, 2007 and instead make a one-time payment in the aggregate amount of $100 million," said a letter recently sent to United Rentals.

"This ability to walk away from the transaction with this limited exposure was specifically bargained for, is clearly and unambiguously stated in the merger agreement and related documentation, and is not in any way conditional on the occurrence of a material adverse change, the termination of the merger agreement by United Rentals or any other event. United Rentals' legal filings and related statements quote selectively from the relevant documents and conveniently ignore the plain language that negates its claims."

Energy East shareholders OK merger

Finally, shareholders of Energy East Corp. gave the nod for its merger with Iberdrola, SA.

Shares of Energy East were up 6 cents Tuesday to close at $27.51 (NYSE: EAS).

Under the agreement, shareholders of Energy East will receive $28.50 in cash for all shares of the company.

The merger is set to close in the first half of 2008.

"The strong support of shareholders for the Iberdrola transaction is just one example of the positive response we have been receiving from all constituencies, including customers, employees and the communities we serve," said Wes von Schack, CEO of Energy East, in a news release.

"As one of the largest energy companies in the world and the world's largest renewable energy provider, Iberdrola brings a commitment to helping us make the necessary infrastructure investments to meet our customers' future energy needs in an environmentally responsive manner."

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