Fannie Mae to Offer Stock

Plans for a $5-billion sale of preferred shares comes after the company said it would have to restate earnings.

Fannie Mae, the biggest provider of money for the U.S. mortgage industry, will sell as much as $5 billion of preferred stock after its regulator said it broke accounting rules and is “significantly undercapitalized.”

The sale, which may take place this week, will entail one part that can be converted into common stock and another that has floating rates and isn’t convertible, Jason Lobo, a spokesman for Washington-based Fannie Mae, said Wednesday. It would be the biggest sale of preferred stock by a company in three years, according to data compiled by Bloomberg.

Fannie Mae said this month that it would have to restate earnings from 2001 through mid-2004 by as much as $9 billion after the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission determined it made bookkeeping errors. Preferred stock is considered equity that has qualities of debt because companies are obligated to make dividend payments.

“This is one of the things that needs to be done to close the capital shortfall,” Igor Krutov, analyst at Vontobel USA Inc., said.

Fannie Mae in September agreed to build a 30% capital surplus after regulators found it broke rules in accounting for hedges on its more-than-$900-billion portfolio of mortgages and mortgage assets, used improper “cookie jar” reserves, and improperly deferred expenses.

Shares of Fannie Mae rose 54 cents to $70.38 a share on the New York Stock Exchange.