KBW Downgrades Fannie (FNM) and Freddie (FRE) to Underperform, $0 Price Taget
FNM Hot Sheet
Rating Summary:0 Buy, 0 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23
Keefe, Bruyette, and Woods downgrades both Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) to Underperform and cut their price targets to $0.
The firm commented, "in order for Fannie Mae and Freddie Mac to survive going forward, they need to be recapitalized through investments by the banks that benefit from their guarantee. Under such an approach, any bank that originates an agency conforming loan and wishes to sell the loan to the GSEs would be required to retain 5% of the loan balance as an equity investment in the GSEs. Thus, the new agencies would be recapitalized at a solid 5% level of the new expanded balance sheets under FAS 166/167."
In the scenario, the firm said, both the common and preferred equity of the GSEs should be worthless.
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