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Fannie, Freddie: Winners on Bailout Payback Hopes

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) were the big winners on Tuesday, among major U.S. financial companies.

Fannie Mae's shares were up 33% to close at 69 cents, while Freddie Mac's shares rose 30% to close at 66 cents. Shares of both government-sponsored mortgage giants pulled back from earlier gains of over 40%. The stocks popped early on Tuesday, after the Wall Street Journal brought attention to Fannie's filing last Thursday, saying the company would delay filing its annual 10-K report to the Securities and Exchange Commission.

Fannie delayed the 10-K in order to buy time needed to analyze whether or not it could recapture some of its $64.1 billion valuation allowance for deferred tax assets (DTA), as of Dec. 31.

Both Fannie Mae and Freddie Mac were taken under government conservatorship by the Federal Housing Finance Agency in September 2008.

As of Sept. 30, the government had $116.1 billion in preferred Fannie Mae shares, and Fannie had paid the Treasury $28.5 billion in dividends.

"We expect to report significant net income for the three months and the year ended December 31, 2012, compared with a net loss of $2.4 billion for the three months ended December 31, 2011 and a net loss of $16.9 billion for the year ended December 31, 2011," Fannie said in the filing last Thursday, even if it is unable to begin recapturing the DTA.

Fannie reported a third-quarter profit of $1.8 billion. That was the company's third consecutive profit. Earnings for the first three quarters of 2012 were $9.7 billion, compared to a net loss of $14.4 billion during the first three quarters of 2011. The company was also able to pay its third-quarter dividend of $2.9 billion in the Treasury's preferred shares, without resorting to further government borrowings.

Freddie Mac said in its 2012 10-K report -- filed punctually on Feb. 28 -- that its valuation allowance for deferred tax assets was $31.7 billion, as of Dec. 31. The government held $72.2 billion in Freddie Mac preferred shares at the end of 2012.

Freddie earned $11 billion during 2012, compared to a net loss of $11 billion in 2011. The company paid $7.2 billion in dividends to the Treasury during 2012, for a total of $23.8 billion in dividends paid since the company was taken under conservatorship.

With the prospect for both mortgage giants to go a long way in repaying the government if they are able to recapture the bulk of their DTA, investors also pushed up the companies' preferred shares, which had their dividends suspended in September 2008. Fannie's preferred series E shares, with a coupon of 5.10% and a par value of $50.00, were up over 4% to close at $5.20. Freddie's preferred series Z shares, with a coupon of 5.375% and a par value of $50.00, were up over 3% to $3.01.
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