Financial stocks rallied on Federal Reserve Chairman Ben Bernanke's hints of more rate cuts in Congressional testimony and good news for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) Wednesday.
The Office of Federal Housing Enterprise Oversight said it will lift the caps on Fannie's and Freddie's portfolios, imposed amid accounting scandals at the government-sponsored mortgage buyers several years ago. The news gave investors hope the two mortgage giants will be able to buy more mortgages and inject liquidity to the markets.
The news came shortly after Fannie reported a $3.6 billion fourth-quarter loss and dismal 2008 outlook. But that bad news was further diluted by Bernanke's promise to "insure against downside risks" -- signaling that the Fed was likely to continue to slash the federal funds rate, despite inflation fears.
Fannie dipped 6% in the morning after reporting its earnings. That move was followed by an 18% rise on the OFHEO news. More recently, it was up 1.1% to $27.27. Freddie followed the same pattern. The stock was up 12% at one point during the day before slipping back. More recently, it was posting a factional loss ahead of its earnings report Thursday morning.The NYSE Financial Sector Index closed up 24.59 of 7784.59. Real estate news was also affecting shares of Provident Bankshares (PBKS), which plunged after the company warned of more writedowns. On Tuesday after the bell, Provident said it could realize impairment charges on some or all of the $32.8 million in the real estate investment trusts in its portfolio. The bank had already previously recorded $47.5 million in a writedown related to its REIT portfolio. Shares fell 2.5% to $15.89 on heavy volume. Auto loan lender Credit Acceptance Corp. (CACC - Get Report) also announced Tuesday that it had increased the amount of its credit facility with a commercial bank from $133.5 million to $153.5 million. Unhappy investors sent the stock down 2.4% to $16.70. In deal news, Nasdaq Stock Market (NDAQ) announced it had completed its merger with OMX, creating the world's largest exchange company. The Nasdaq OMX Group, as it will now be known, shot up to $42.20 before settling back down to $41.58, a gain of 48 cents. Elsewhere, S1 Corp. (SONE), a Norcross, Ga.-based provider of software for banks, credit unions and insurance companies, reported a fourth-quarter profit after the close. S1 reported net income 11 cents a share, beating expectations by 3 cents. The stock jumped 23.5% to $7.46. MCG Capital (MCGC - Get Report) also beat estimates by 5 cents on quarterly earnings of 48 cents per share, excluding non-recurring items. The Thomson Financial consensus estimate was 43 cents a share. Shares were climbing $1.38 to $13.61. Employers Holdings (EIG - Get Report) saw its shares rise 4.8% to $16.91, after the provider of workers' compensation insurance to small businesses said its board authorized the repurchase of up to $100 million of the company's shares through June 30. The company had reported a 42.3% decrease in fourth-quarter profits and a 34.6% drop in revenues.