Aug. 26 (Bloomberg) -- Fannie Mae and Freddie Mac can withstand losses through the end of the year and still keep a cushion above their minimum capital requirements, according to Citigroup Inc. analysts.

Freddie of McLean, Virginia, will have $12.7 billion of capital above the minimum requirement, according to Citigroup Inc. analysts. Washington-based Fannie will have $20.3 billion.

Fannie will generate $7.5 billion of revenue in the second half, compared with $1.5 billion of expenses. Freddie will have $5.5 billion of revenue and expenses of $1.2 billion.

The companies may reap about $1 billion each per quarter from mortgage paydowns and their regulator may reduce minimum capital requirements, returning $4.9 billion of capital to Fannie and $5.7 billion to Freddie, the slides show.

``They can absorb fairly significant credit costs between now and the end of this year without having to add additional capital,'' analyst Bradley Ball said on a conference call with investors today. If the credit markets worsen more than Citigroup anticipates ``there's a pretty good chance they will have to tap the market for additional capital, if not end of this year, sometime in 2009,'' Ball said.

The bank's interest rate strategists led by Scott Peng in New York said last week that the beleaguered mortgage-finance companies don't need to be nationalized and the U.S. should resist being ``stampeded'' into a bailout. Treasury Secretary Henry Paulson last month won approval to pump unlimited amounts of capital into Fannie and Freddie, which guarantee or own about $5 trillion of the $12 trillion in U.S. home loans.

`Test Case'

The Federal Housing Finance Agency, which regulates the companies, will probably increase Fannie and Freddie's capital standards now that Congress gave it more authority, Ball said.

``The regulator will use this period as a test case in evaluating what the appropriate capital levels should be going forward,'' he said.

Financing costs for the government-chartered companies, while rising, remain ``quite reasonable'' and are still at a historically low level when compared to the yields from the mortgage bonds they buy.

``Any purchases they do make are providing historically high spreads relative to their funding,'' the analysts wrote.

Fannie rose 43 cents, or 8.3 percent, to $5.62 at 4:02 p.m. in New York Stock Exchange composite trading. Freddie gained 68 cents, or 21 percent, to $3.97.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: August 26, 2008 16:22 EDT