Business briefs

SAN FRANCISCO — Hundreds of patients who allege they or their loved ones suffered heart attacks and strokes after taking pain medication Celebrex may be dropped from a massive lawsuit against drug maker Pfizer, Inc. in light of a federal judge’s ruling.

U.S. District Judge Charles R. Breyer of San Francisco said in his ruling Monday that lawyers for the more than 3,000 plaintiffs in the case failed to produce "scientifically reliable evidence that Celebrex causes heart attacks or strokes when ingested at the 200 milligram a day dose.” That’s the most commonly prescribed dosage, according to Pfizer.

In 2005, the Food and Drug Administration reviewed the risks of drugs like Celebrex and Vioxx, known as nonsteroidal anti-inflammatory drugs, and concluded they should include a label warning patients of increased risk of strokes and heart attacks. As a result, thousands of patients sued New York, N.Y.-based Pfizer and Vioxx-maker Merck.

All the federal claims against Merck were consolidated in New Orleans; the claims against Pfizer were consolidated in San Francisco.

Freddie Mac sets aside $1.2 billion in 3Q for bad home loans

WASHINGTON — Freddie Mac, the nation’s No. 2 buyer and guarantor of home loans, lost $2 billion in the third quarter and said Tuesday it must raise fresh capital to meet regulatory requirements. Its shares fell nearly 30 percent.

The quarterly loss was the largest ever for Freddie Mac which, like its larger government-sponsored competitor Fannie Mae and a number of large investment banks, has been slammed in recent months by rising defaults on home mortgages.

The mortgage financier said it is "seriously considering” cutting in half its dividend in the fourth quarter and has hired Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. as financial advisers to help it examine possible new ways of raising capital in the near future.

Freddie Mac set aside $1.2 billion in the turbulent July-September period to account for bad home loans, which it said reflected "the significant deterioration of mortgage credit.”

Freddie Mac, like Fannie Mae, has traditionally funded the mortgage market when other banks pull back because of risk, in keeping with its charter.

Industry experts say a reduced role by either may ripple across the entire housing market.

Fannie Mae and Freddie Mac "have provided essential liquidity in a time of crisis,” Fox-Pitt, Kelton analyst Howard Shapiro said in a research note.

"Now that that liquidity function has essentially been withdrawn, it will mean, in our opinion, a further exacerbation of the housing downturn — even less credit available and steeper downturns in home prices.”

Executives said Tuesday there was little to be optimistic about in the upcoming fourth quarter and told investors to brace for more of the same, sending shares on the greatest one-day plunge since public trading began for Freddie nearly two decades ago.

"This is a very, very difficult time. This is not happy news,” Freddie Mac’s chairman and CEO, Richard Syron, said in a conference call with Wall Street analysts. "We will work through this.”

If dividend cuts and other actions aren’t sufficient to help the company reach its government-mandated level of capital held in reserve as a cushion against risk, Freddie Mac said it may consider other measures such as limiting its growth, reducing the size of its mortgage investment holdings or issuing new stock.

Freddie Mac’s losses widened from $715 million during the same period last year and its shares tumbled $11.07 to $26.43 in midday trading.

The company posted negative revenue of $678 million, as it sustained losses under generally accepted accounting principles of $3.6 billion in the quarter. The revenue compared with positive revenue of $91 million a year earlier.

The $2 billion third-quarter loss for McLean, Va.-based Freddie Mac worked out to $3.29 a share, compared with $1.17 a share in the third quarter of 2006.

Losses far exceeded Wall Street analysts expectations of a 22 cent per-share loss, according to a poll by Thomson Financial.

The results for Freddie Mac, together with a recent report by Fannie Mae, heighten investor anxiety over the government-sponsored companies, which had been considered less vulnerable in the housing crisis because they have had less exposure to high-risk, subprime mortgages.

Freddie Mac’s regulatory core capital was estimated to be just $600 million in excess of the 30 percent mandatory target capital surplus directed by the Office of Federal Housing Enterprise Oversight.

So far this year, Freddie Mac has recognized $4.6 billion in pretax credit related items.

Buddy Piszel, chief financial officer, said Freddie Mac is moving to stem losses.

"We have begun raising prices, tightened our credit standards and enhanced our risk management practices,” Piszel said. "We also continue to improve our internal controls.”

"We were getting thin” in terms of excess capital, and Freddie Mac decided it needed to bolster its capital "to manage through this credit cycle,” Piszel said in a telephone interview. That cycle isn’t expected to improve until 2009, he said, with home prices projected to register a 5 percent to 6 percent decline nationwide.

Countrywide seeks to reassure investors amid bankruptcy rumors

LOS ANGELES — Countrywide Financial Corp., the nation’s largest mortgage lender, sought to reassure investors Tuesday, declaring it has ample capital, access to cash and is well-positioned to benefit from the financial turmoil rocking the mortgage sector.

The company’s statement came amid rumors the Calabasas, Calif.-based company could be looking to seek bankruptcy protection and as its stock tumbled at one point more than 15 percent.

Countrywide shares fell 32 cents, or 3 percent, to $10.25. At one point, the stock had dropped to a low of $8.21. Over the past 52 weeks, the stock price has ranged between $10.25 and $45.26.

"Countrywide Bank ... has sufficient liquidity available to meet its projected operating and growth needs and has accumulated significant contingent liquidity in response to evolving market conditions,” the company said.

The lender has shifted the bulk of its loan funding through its banking arm from sales on the secondary market in the wake of the liquidity crisis that rattled financial markets following a spike in home loan defaults this year.

Countrywide also noted it expects its home lending unit to be able to service debt beyond next year without having to purchase additional debt insurance.

The company said it had $35.4 billion in cash available as of Oct. 31, 2007, up from $33.6 billion in the previous month.

Countrywide’s stock price decline came as Fox-Pitt, Kelton analyst Howard Shapiro cut his rating on the company to "In Line” from "Outperform.”

Shapiro noted in a research note that Countrywide’s woes could worsen if the Federal Home Loan Mortgage Corp., or Freddie Mac, is forced to scale back how many loans it buys from mortgage lenders.

On Tuesday, Freddie Mac reported it lost $2 billion in the third quarter and warned it may need to decrease its business unless it can raise new capital.

Like other mortgage lenders, Countrywide pools the home loans it originates and sells them to investment banks and government-backed mortgage banks such as Freddie Mac.

Freddie Mac is the nation’s No. 2 buyer and guarantor of mortgages, after Federal National Mortgage Association, or Fannie Mae.

Shapiro speculated the government-sponsored mortgage financier’s troubles could result in less funding for lenders, a critical blow at a time when Wall Street investment banks have pulled back on mortgage-backed debt amid rising home-loan defaults.

A reduction in funding from Freddie Mac would hamper Countrywide’s ability to originate loans, causing its loan volume to fall further this year, Shapiro wrote.

Last week, Countrywide reported that its mortgage loan fundings dropped 48 percent to $21.9 billion in October compared to the year-ago month.

The company posted a loss of $1.2 billion during the quarter ended Sept. 30.

Management said last month the company would post a profit in the coming quarter and next year.

Still, Moody’s Investors Service said Tuesday there is a possibility Countrywide will post losses in the fourth quarter of this year and first quarter of 2008.

Quarterly losses would be tied to further writedowns and expected increases in loan-loss provisions in the upcoming quarter, Craig Emrick, a vice president on Moody’s U.S. banking team, said during a conference call.

Moody’s did not say it would lower ratings at Countrywide if the lender encountered future quarterly losses. It did however say it would review how those losses affect capital ratios to ensure the bank is maintaining adequate liquidity.

As of now, Moody’s said it does not foresee future losses "significantly impairing capital,” based on stress test scenarios Moody’s uses to review credit ratings.

On Monday, Moody’s reaffirmed its credit ratings for Countrywide, though it kept a negative outlook on the lender.