Fannie Mae (
OTCQB:FNMA) slumps 9.9% and
Freddie Mac (
OTCQB:FMCC) falls 9.6% as Odeon strategist Dick Bove notes the GSEs' common equity "will be massively diluted" and there's no model in place "that suggests that this dilution can be overcome," he told Bloomberg in an email.
"The primary mortgages industry is in deep disarray and this must be fixed before the secondary market becomes a reasonable investment,” he wrote.
Height Capital Markets initiates Fannie and Freddie common equity at sell, junior preferreds at buy.
In the past six months Freddie
has risen 66% and Fannie shares
have jumped 72% as investors expect some progress on restructuring and ending government conservatorship status; compares with financial sector median performance of +4.9%.
Fannie, Freddie overhaul could mean windfall for preferred stock, analyst says
...As part of the 2008 conservatorship arrangement, Treasury owns about 80% of the preferred shares of Fannie and Freddie. Groshans wrote that he expects Treasury “to deem its senior preferred shares to be repaid.”
After that, he said, he expects Freddie to raise $52 billion of new common stock shares, and projects that holders of junior preferred shares will be converted into common shares at a value that is equal to 75% of par or more, increasing the value of those junior preferred shares over 45%. Similarly, he expects Fannie to raise $87 billion of new common stock, with a junior preferred-common conversion like Freddie’s, helping them gain over 40%....