Fannie, Freddie shares on the rise; banks and FDIC share focus
Aug 27, 2008 Market Outlook
Fannie, Freddie trade higher
Markets focus on GSEs’ fate and bank stocks; FDIC may tap Treasury funds
By John Spence, MarketWatch
Last Update: 8/27/2008 10:41:00 AM
BOSTON (MarketWatch) — Shares of Fannie Mae and Freddie Mac stretched their
recent rally Wednesday as investors continued to debate the future of the
mortgage-finance giants and the prospects of a government bailout.
Fannie (FNM) and Freddie (FRE) both saw their shares trade higher by more than 5%
in early action Wednesday. Through Tuesday’s close, Freddie shares have risen 41%
so far this week, while Fannie is up 12%.
The markets are currently in a tug-of-war over whether Fannie and Freddie need a
bailout from the U.S. Treasury. However, some Wall Street analysts this week have
said a rescue isn’t a given, and that the government could potentially help
Fannie and Freddie without wiping out equity shareholders.
Still, Standard & Poor’s late Tuesday downgraded its ratings on the preferred
stock of Fannie and Freddie.
Investors were encouraged earlier this week when Freddie was able to move $2
billion of notes, and the firms’ upcoming debt auctions will provide a test of
market confidence. Investors have been demanding higher yield on the debt to
cover the potential risk.
Freddie shares rose 20% on Tuesday, rallying after the company said its mortgage
portfolio grew in July as delinquencies ticked higher. Fannie was also out with
monthly portfolio data on Tuesday.
The mortgage firms have suffered billions of dollars of losses, and there are
concerns their thinning capital positions could hamper their ability to buy
mortgages, which would further chill the housing market.
Investors on Wednesday will also be keeping a close eye on shares of U.S. banks,
which have heavy exposure to Fannie and Freddie debt. The Federal Deposit
Insurance Corp. on Tuesday said its “problem list” of financial institutions grew
to 117 from 90 during the second quarter, the most in about five years.
The FDIC’s considering a plan to borrow funds from the Treasury as it seeks to
shore up its finances amid an expected wave of bank failures, according to a
published report.
Funds borrowed from the Treasury would used to cover short-term cash-flow needs
related to reimbursing depositors in the aftermath of bank failure, The Wall
Street Journal reported Tuesday, citing comments by FDIC Chairman Sheila Bair.
The story said the borrowed funds would be repaid once assets from the failed
bank are sold.
Elsewhere in the U.S. financial sector, shares of Lehman Bros. Holdings (LEH)
traded higher.
A trio of private-equity firms — Kohlberg Kravis Roberts, Hellman & Friedman and
Bain Capital — remain in the running to acquire Lehman’s investment-management
business, even though the investment bank still hasn’t decided whether to sell
it, according to a report late Tuesday in the Financial Times.
The article also said that Blackstone Group (BX) and Carlyle Group are both out
of the bidding for the unit, which includes fund manager Neuberger Berman.
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Tags: Bank Stocks, Capital Positions, Fannie Freddie, Fannie Mae, Fannie Mae And Freddie Mac, Federal Deposit Insurance, Federal Deposit Insurance Corp, Finance Giants, John Spence, List Of Financial Institutions, Market Confidence, Market Investors, Mortgage Finance, Mortgage Firms, Mortgage Portfolio, Portfolio Data, Treasury Funds, Tug Of War, U S Treasury, Wall Street Analysts
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