So let’s get this right. Fannie and Freddie are the benefactors of what is arguably the biggest governmental bailout of all time, but the folks who took stock in these companies and actually invested in these mortgage behemoths, have no place to sit when the music stops. That hardly seems fair. No, forget about fair, it’s flat out insultingly wrong!
Fannie and Freddie shares are trading in the low single digits as of this morning. Despite the near 52 week low that these current stocks are sitting at, the almost maniacal trading of these free-falling stocks seems to underscore the belief held by some that the government can’t possibly let these two “companies” take much more of a fall and that the government will eventually ride in on a white horse and rescue Fannie and Freddie.
However, no one has heard the approaching hoof-beats as of yet and accordingly some seem to feel that call to the bullpen has not yet been made, or is even necessary. With the Democratic National convention in just a few days and with the Republican National Convention to follow shortly thereafter, the need to tread softly and the treacherous waters to be navigated by such a bailout may not prove to be politically viable.
“The government doesn’t want to own these companies,” FBR Capital Markets analyst Paul Miller said Wednesday on Bloomberg television.
Stock prices for Fannie and Freddie shares dropped for the fourth straight day Wednesday, as the companies’ shares hit their lowest levels in nearly 20 years, dropping below the levels they bottomed out at last month in the panic that led Treasury Secretary Henry Paulson to propose a government-funded backstop that was later passed into law by Congress.
The fear on Wall Street is that the continued dumping of Fannie and Freddie shares and the rising cost of of their borrowing will leave Paulson and the government no choice but to infuse both companies with a well needed recapitlization. After what Near Stearns shareholders getting spanked by the Jamie Dimon led buyout of that surprisingly busted pillar of Wall Street, the feeling is that any bailout of Fannie and Freddie would essentially mean a complete wipe-out of their unfortunate shareholders.
At least the Bear Stearns carnage allowed their survivors to reap $10 per share. Albeit it was trading at nearly 20 times that price prior to the collapse of that company. Fannie and Freddie shareholders won’t be as “lucky”.
Most interesting is the fact that despite the drastic bottoming out of their stock prices and the horrific forecasting and continued downward trend for most of the housing market … which spells even MORE losses for Fannie and Freddie in the future, neither company is currently strapped for cash.
That’s not likely to be the case much longer as FBR’s Miller adds that he believes each company will need to raise $15 billion or so to survive the housing bust, for now both companies remain above the capital levels required by their regulator, the Office of Federal Housing Enterprise Oversight.
original source: Fort Lauderdale Real Estate Blog
