Fannie and Freddie Keep Soaring: Financial Winners

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

Shares of Fannie Mae rose 50% to close at $1.08, following a 38% increase on Tuesday. Shares of Freddie Mac were up 54%, also closing at $1.08, building on Tuesday's 35% gain.

Fannie and Freddie were taken under government conservatorship by the Federal Housing Finance Agency (FHFA) in September 2008. The shares of both companies have been on fire since The Wall Street Journal called attention to a filing last Thursday, when the company said it would delay filing its annual 10-K report to the Securities and Exchange Commission.

Under normal circumstances, a delayed filing would be bad news. However, Fannie said it would use the extra time to analyze whether it could recapture some of its $61.5 billion valuation allowance for deferred tax assets (DTA), as of Dec. 31. The eventual recapture of that money would recapitalize the company and go a long way toward redeeming $116.1 billion in preferred shares held by the U.S. Treasury for bailout assistance to the company.

Fannie reported a third-quarter profit of $1.8 billion, which 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 paid a total of $28.5 billion in dividends to the Treasury as of Sept. 30.

Freddie Mac filed its 2012 10-K, on Feb. 28, reporting that its DTA valuation allowance 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, improving from a 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 both companies now profitable, and possibly seeing light at the end of the bailout tunnel, even their preferred shares were hot, despite having dividend payments suspended since September 2008.

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