Skip to main content

Fannie and Freddie go south

Fannie Mae and Freddie Mac shares continue to fall after posting big losses on Tuesday.

Worries over the financial condition of the two lenders, both government-sponsored enterprises, deepened on Tuesday after Freddie Mac reported a third quarter loss of around $2 billion dollars.

Here's the latest on Wednesday's action from Reuters.

Shares of Freddie Mac (FRE.N: Quote, Profile, Research) fell as much as 9.5 percent on Wednesday after analysts slashed their price targets on the stock, saying an unexpectedly wide third-quarter loss may make it tough for the No. 2 U.S. home funding company to inject the liquidity needed to rescue an ailing housing market.

Government-sponsored enterprises Fannie Mae (FNM.N: Quote, Profile, Research), the largest U.S. home funding company, and Freddie Mac have been hit by mounting losses as home foreclosures continue to climb and the credit crisis drains the value of mortgages they own.

Our "Jive Turkey" award goes to the Wall St. analysts who have once again stepped in after the fact to lower their price targets in line with recently pummeled share prices.

Goldman Sachs analyst James Fotheringham cut his price target on Freddie by two-thirds to $24, lowered his earnings estimates and said the company might face a further decline in the fair value of net assets in coming quarters.

Bear Stearns analyst David Hochstim cut his price target on Fannie Mae from $75 to $70.

Credit Suisse analyst Moshe Orenbuch cut his price target on Freddie Mac to $27 from $45 to reflect the company's limited capital flexibility.Fannie Mae fell nearly 1 percent on Wednesday.

Paul Miller, an analyst with Friedman, Billings, Ramsay, who downgraded Freddie to "underperform" from "market perform" and slashed his price target to $20 from $55 on Tuesday, said he expects the company to raise up to $5 billion but is unclear on how and in what form it will raise capital.

And so on...

Frankly, this whole GSE business puzzled me, as I could not figure out why such startling irregularities at Fannie and Freddie were ignored by investors, who consistently shrugged off late filings and accounting problems at the two firms.

Having never been more than a casual observer of these companies, I had to wonder: was I missing something?

Yesterday's carnage was no surprise to investor Jim Rogers, who spoke with Bloomberg about the problems at Fannie Mae and Freddie Mac.

According to Rogers, who is still short the two lenders, no one is sure what is going at Fannie Mae or Freddie Mac. He also feels that the problems from the subprime lending mess will take years to clean out.

Watch this interview clip to hear more.

We'll see you on Friday. Happy Thanksgiving, gang.

Popular posts from this blog

The Dot-Com Bubble in 1 Chart: InfoSpace

With all the recent talk of a new bubble in the making, thanks in part to the Yellen Fed's continued easy money stance, I thought it'd be instructive to revisit our previous stock market bubble - in one quick chart.

So here's what a real stock market bubble looks like. 

Here's what a bubble *really* looks like. InfoSpace in 1999-2001. $QQQ$BCORpic.twitter.com/xjsMk433H7
— David Shvartsman (@FinanceTrends) February 24, 2015
For those of you who are a little too young to recall it, this is a chart of InfoSpace at the height of the Nasdaq dot-com bubble in 1999-2001. This fallen angel soared to fantastic heights only to plummet back down to earth as the bubble, and InfoSpace's shady business plan, turned to rubble.

As detailed in our post, "Round trip stocks: Momentum booms and busts", InfoSpace rocketed from under $100 a share to over $1,300 a share in less than six months. 

In a pattern common to many parabolic shooting stars, the stock soon peaked and began a…

New! Finance Trends now at FinanceTrendsLetter.com

Update for our readers: Finance Trends has a new URL! 

Please bookmark our new web address at Financetrendsletter.com

Readers sticking with RSS updates should point your feed readers to our new Finance Trends feedburner.  



Thank you to all of our loyal readers who have been with us since the early days. Exciting stuff to come in the weeks ahead!

As a quick reminder, you can subscribe to our free email list to receive the Finance Trends Newsletter. You'll receive email updates about once every 4-8 weeks (about 2-3 times per quarter). 

Stay up to date with our real-time insights and updates on Twitter.

Moneyball: How the Red Sox Win Championships

Welcome, readers. To get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter.

The Boston Red Sox won their fourth World Series titleof the 21st century this week.

Having won their first Series in 86 years back in 2004, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it?

Quick background: in late 2002, team owner and hedge fund manager,John W. Henry(with his partners)bought the Boston Red Sox and its historic Fenway Park for a reported sum of $695 million.

Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship.

This brings us to one of my favorite scenes from the 2011 film, Moneyball, in which John W. Henry (played by Arliss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pitt) over to Boston with an excellent job off…