Cash Management

Fannie Mae Cuts Dividend in Half

The mortgage company's federal regulator had said reported that Fannie Mae was nearly $3 billion below its minimum capital requirement.
Stephen TaubJanuary 20, 2005

Fannie Mae stunned investors Tuesday when it announced that it would cut its common stock dividend by 50 percent, to 26 cents per share, citing a need to accelerate an increase in the company’s capital. It said the payment of the dividends was approved by its federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO).

“The board of directors believes that this is a prudent and responsible action to take as the company moves expeditiously to increase its capital,” said non-executive chairman Stephen Ashley. Reducing the dividend will help Fannie Mae boost capital to a 30 percent surplus over its minimum requirement, according to the company.

Last month, the OFHEO stated that as of September 30, the mortgage giant was nearly $3 billion below its minimum capital requirement. At that time, the regulator directed Fannie Mae to bring core capital into compliance and to target the 30 percent surplus. In a statement, OFHEO director Armando Falcon Jr. said that “This action demonstrates the board’s commitment to taking necessary measures to increase the company’s capital.”

Last month also saw Fannie Mae undertake a $9 billion restatement from 2001 through mid-2004 at the behest of the Securities and Exchange Commission. Under pressure from the OFHEO, Fannie Mae chairman and chief executive officer Franklin D. Raines and chief financial officer J. Timothy Howard resigned after the release of the SEC report.