Fannie Mae's capital "appears much stronger" than people believe, Bruce Harting, a Lehman Brothers analyst, wrote in a research note published Thursday.

Both Fannie and Freddie Mac should be able to make it through the housing downturn without government intervention, Mr. Harting wrote.

After being pushed down relentlessly this month on speculation that a government bailout was inevitable, Fannie shares have risen in recent days on strong demand for the government-sponsored enterprise's short-term debt.

The stock closed Thursday at $7.95, up 22.7% from Wednesday's close.

Mr. Harting wrote that neither Fannie nor Freddie has an immediate need for capital, and that even though both GSEs should continue to absorb credit losses "well into 2010," strong margins and the normalization of credit costs by late 2010 should return them "to profitability long before the economic capital in the company could be depleted."

He also suggested that the Treasury Department announce it has no plans to nationalize the GSEs, and that it lay out "a backstop option for capital that does not immediately wipe out preferred and common" shares.

Mr. Harting's argument that the government-sponsored buyers of mortgages have enough capital is based on the fact that their loan chargeoffs are coming in lower than their reserves for losses. He expects to see that trend continue through the second half.

Fannie should end the year with $42 billion of core capital, well above its surplus capital requirements, plus $14 billion of loss reserves, he wrote.

Freddie's core capital is $8.4 billion above its statutory minimum and $2.7 billion above its required 20% surplus, Mr. Harting wrote, so it can absorb another two quarters of losses similar to its second-quarter loss of $821 million before it falls below minimum requirements.

Freddie has said it intends to raise another $5.5 billion of capital, though it has not said when it will do so.

Analysts at Citigroup Inc. and Merrill Lynch said this week that a bailout that would wipe out shareholder equity is not a sure thing.

Citi reiterated its "buy" rating for shares of both GSEs. Merrill, which has a sell-equivalent rating on the shares, said the political uncertainty was too great to recommend buying them.

After hitting a high of $13.60 early this month, Fannie's shares dropped 74%, to $3.53 last week. Since then the shares have nearly doubled in value.

Fannie said late Wednesday that it had made several management changes, including replacing its chief financial officer and chief business officer.

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