Tuesday, October 20, 2009

Fannie's And Freddie's Last Man Standing (FRE; FNM)

This is a re-post of a September 14 piece. In light of the action in the former GSE's (former because 79.9% ownership by the government means they are no longer just 'sponsered') yesterday (Fannie down 21.92%, Freddie down21.51%), I thought we should take another look at Keefe, Bruyette & Woods analyst Bose George. Mr. George is the only analyst left covering the dying giants.
In early pre-market trade Freddie was down another 5%, Fannie 2%.

An excellent piece by Maurna Desmond at Forbes:

KBW analyst Bose George is the only Wall Street analyst still covering the mortgage giants. He talks to Forbes about their future.

Before Fannie Mae and Freddie Mac were taken over by the federal government last fall, before they teetered on the verge of collapse, before they gushed quarterly losses of $25 billion apiece, these two mortgage giants were closely monitored by more than a dozen of the sharpest minds on Wall Street. No surprise there. At their peak, they had a combined market capitalization of $138 billion.

That was then. As government-controlled firms with a $5 trillion balance sheet between them, they are now worth only about $3 billion. The analysts are gone too--except Bose George....

...In terms of Fannie and Freddie in their current state, where's the value and where's the liability?

We feel it's going to be pretty difficult for them to generate money. The companies have significant holes, clearly, in their capital. They owe the government roughly $50 billion each. They are continuing to generate losses, primarily because they are building up their loss reserves to levels in line with expected losses.

Once you get past that point, you still have entities with no capital. So if you want to run them like banks, you still have a capital hole that needs to be filled. That's really the crux of the problem. They have no capital and this large debt to the government as well.

What about their stocks?

It seems like [it] eventually goes to zero, but it could have a lot of ups and downs before it gets there. It could continue to be a trading game for quite a while....MUCH MORE

Previously: "Fannie, Freddie shares dive on zero-value prediction (FRE; FNM)"