Zombie Stocks Mauled by Bears

Fannie Mae, Freddie Mac and AIG shares were all trading lower Monday, as bearish sentiment dampened the enthusiasm that led to last week's rally.
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(Updated with new stock prices throughout)

NEW YORK (

TheStreet

) -- Shares of three largely government-owned institutions were trading lower Monday morning as bearish sentiment set in, following a week-long rally that sent shares of "

zombie" institutions up sharply.

Fannie Mae

was trading 6.4% lower at $1.91 in recent trading, as

Freddie Mac

fell 7.5% to $2.22 and

American International Group

(AIG) - Get Report

slumped 10.3% to $45.05.

In recent sessions, all three firms have largely traded higher on a mix of improving economic fundamentals, short covering and speculative bets.

AIG climbed 53% last week, while Fannie surged 70% and Freddie climbed 39%.

However, an FBR Research report on Monday morning asserted that "no underlying value remains" in the shares of Fannie and Freddie, which owe the government nearly $100 billion and could borrow more. Combined with huge exposure to nonperforming loans and the "large question mark" about the future structure of the agencies, FBR analysts see the shares as simply a short-term speculative profit bet.

A

Barron's

article also brought euphoric AIG traders back to earth, pointing out that while some company fundamentals have improved, its tangible book value is still negative and its shares appear "overpriced."

The insurer is looking to sell noncore assets and return itself to a traditional property and casualty insurer. New CEO Robert Benmosche is taking time to examine the company and reevaluate which portions will be sold and at what price. A report in

The Wall Street Journal

said an executive at the insurer may buy its valuable aircraft leasing division himself.

Steven Udvar-Hazy, head of International Lease Finance Corp. may purchase $2 billion of the company's $40 billion aircraft portfolio and use it to start a rival business, according to the

Journal

, which cited anonymous sources.

Shares of other troubled financial firms were also down Monday, with

Citigroup

(C) - Get Report

down 4.4% to $5 and

Bank of America

(BAC) - Get Report

down 1.7% at $17.68.

CIT Group

(CIT) - Get Report

traded down initially, but more recently was adding 1.2% to $1.70.

--

Written by Lauren Tara LaCapra in New York

.