NEW YORK (
) -- While investors have become much more comfortable with the prospects for
, KBW analyst Bose George still says that when all is said and done, common and junior preferred shareholders will get nothing.
"While both companies could have significant value, we continue to believe that residual value, if any, will go to the government and not to private shareholders," George wrote in a report on Sunday.
KBW has "underperform" ratings for both Fannie Mae and Freddie Mac, with price targets of zero, underlining the firm's negative view of prospects for private shareholders.
Common shares of Fannie Mae closed at $1.98 Friday, returning 662% since the end of 2012, when the shares closed at 26 cents. Freddie Mac's shares closed at $1.86 Friday, returning 615% since the end of last year, when they also closed at 26 cents. The most liquid junior preferred GSE shares have also risen considerably this year, trading for roughly 22 cents to par value on Friday, increasing from 7 cents to par, at the end of last year.
Fannie and Freddie -- together known as the government-sponsored enterprises, or GSEs -- were taken under government conservatorship in September 2008. The U.S. Treasury holds $189.4 billion in senior preferred share of the GSEs, for bailout assistance, and dividends on all other share classes have been suspended since September 2008.
The GSEs continue to play their crucial role in U.S. mortgage finance, holding roughly $5.2 trillion in mortgage loans and mortgage backed securities as of March 31, and purchasing roughly 90% of newly originated mortgage loans in the United States.
High profile investors, including Ralph Nader and Bruce Berkowitz's
Fairholme Capital Management
have made public statements saying that when President Obama and Congress finally agree on a way forward for the U.S. mortgage market, the property rights of the GSEs' common and junior preferred shareholders should be respected. A draft bill expected to be introduced in the Senate
has also given hope to private investors
But according to George, neither the numbers nor the legal factors make it likely for the private shareholders to see any reward from a political settlement for Fannie and Freddie. "We believe that the longer-term value of the common and preferred shares will be driven by political actions and not by operating fundamentals," he wrote. "So our expectation remains unchanged that the shares are likely to have no value."
"Earnings Should Remain Strong"