Fannie Mae and Freddie Mac dropped in after-hours trading on concern any rescue plan devised by U.S. Treasury Secretary Henry Paulson will wipe out shareholders.
Fannie dropped $2.25, or 32 percent, to $4.79 at 5:50 p.m. Friday in New York Stock Exchange trading after the Wall Street Journal said the Treasury was close to completing a plan to help the mortgage-finance companies. Freddie slumped $1.40, or 27 percent, to $3.70.
The plan may involve a “creative use” of the Treasury's new authority to pump capital into the companies as well as changes to senior management, the Journal reported on its Web site, citing a person it didn't name.
Fannie and Freddie shares had already tumbled more than 80 percent this year, and their debt costs have climbed amid concern they don't have enough capital to weather the biggest housing slump since the Depression.
An announcement might come as early as this weekend, the Journal said. Treasury spokeswoman Brookly Mclaughlin declined to comment. The Treasury hired Morgan Stanley last month to serve as an adviser on potential use of government funds to help the companies, whose shares plunged this year on concern they lack sufficient capital to offset losses.
Altria Group Inc., which owns Marlboro-maker Philip Morris USA, is in talks to buy UST Inc., the largest U.S. snuff producer, for more than $10 billion, people with knowledge of the negotiations said.
A bid that size would value UST at 26 percent more than Thursday's closing price. UST, which produces Skoal and Copenhagen smokeless tobacco, and Altria are in advanced discussions, and an announcement might come next week, said the people, who declined to be identified because the talks aren't public.
Acquiring UST would give Altria about 60 percent of U.S. shipments of snuff, a $3.7 billion industry that's growing about 7 percent a year. Altria expects cigarette consumption to decline 3.5 percent this year, forcing it to play catch-up to UST and Reynolds American Inc.'s Kodiak and Grizzly smokeless brands.
Lorillard Inc., the manufacturer of Newport menthol cigarettes, may be the most likely next target as the U.S. tobacco industry consolidates. Nik Modi, an analyst at UBS Securities LLC, and investor Matthew Kaufler said Friday that a UST acquisition might force Reynolds American, the second-largest U.S. tobacco company, to bid for the Greensboro-based cigarette maker.
General Electric Co. said Friday that it has been informed that the Securities and Exchange Commission might recommend fines and other action for possible violations of securities law related to accounting changes the company made.
GE said in a regulatory filing that the notification, called a “Wells notice,” is related to issues dating to several years ago concerning GE's accounting for certain derivatives used for hedging interest rate risk and other transactions. GE said it disagrees with a recommendation for civil action and is cooperating with the SEC.