Fannie, Freddie shares soar on huge volume - By Associated Press Business Week 08-24-2009

Fannie, Freddie shares soar on huge volume - By Associated Press Business Week 08-24-2009

Fannie, Freddie shares soar on huge volume
By Associated Press
Business Week
August 24, 2009

Shares of government-controlled mortgage finance companies Fannie Mae and Freddie Mac zoomed higher Monday on much higher volume than normal, even as Wall Street continues to expect big losses.

The volume of Monday and late last week on the shares is "kind of strange," said Keefe, Bruyette & Woods analyst Bose George. He thinks retail traders, coming from online brokerages such as Charles Schwab Corp., are driving the trading. It's not from institutional investors, he said.

"We continue to believe that the common stock is worth zero. They both owe the government about $50 billion each and have no capital of their own," George said.

Even in a best-case scenario of a strong housing recovery, the two owe so much to the government that they're unlikely to make anything, he said.

Earlier this month, Fannie posted a second-quarter loss of $15.2 billion, or $2.67 per share, and said it would ask the government for $11 billion more in aid. Freddie posted a quarterly loss of $374 million, or 11 cents a share.

Fannie's request for more aid brought the total amount the Treasury Department will have issued the two to nearly $96 billion.

Since it reported results, shares of Freddie have more than doubled. They were up 26 cents, or 15 percent, to $2 in afternoon trading, with 331 million shares trading, nearly sixfold normal volume. Fannie shares were up 52 percent since they announced their second-quarter results as of Friday's close and soared 40 cents, or 33 percent, to $1.59 in afternoon trading Monday with 710 million shares trading hands. That's more than eight times its 30-day average trading volume.

The Federal Reserve also continues to buy up mortgage-backed securities guaranteed by Freddie, Fannie and their sibling, Ginnie Mae. The Federal Reserve bank of New York said last week that its net purchases of the agencies' securities rose to $25 billion in the week ended Aug. 19, up from $20.4 billion the previous week. The Federal Reserve's holdings of the securities averaged $607 billion that week, the central bank said Thursday.

The Fed has said it would buy up $1.25 trillion of the mortgage-backed securities, along with $200 billion of debt issued by Fannie and Freddie, in order to hold down mortgage rates.

Few research analysts still offer estimates for the two. According to Thomson Reuters, the average estimate of two analysts calls for a loss of $10.53 per share for the year for Fannie Mae. The sole analyst with an estimate for Freddie Mac expects a loss of $5.99 per share in 2009.

A message left for Fannie Mae was not immediately returned. Freddie Mac spokesman Michael Cosgrove said the company had no comment.


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