This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fannie and Freddie Shareholders Will Get Nothing: KBW

NEW YORK ( TheStreet) -- While investors have become much more comfortable with the prospects for Fannie Mae (FNMA) and Freddie Mac (FMCC), 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"

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
FNMA $2.48 -0.40%
FMCC $2.36 -0.84%
AAPL $122.50 -0.71%
FB $95.39 0.10%
GOOG $630.31 0.37%

Markets

Chart of I:DJI
DOW 17,751.39 +121.12 0.69%
S&P 500 2,108.57 +15.32 0.73%
NASDAQ 5,111.7330 +22.5270 0.44%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs