Magazine article American Banker

Fannie Stock Up on Probe's Halt; Little Effect Seen

Magazine article American Banker

Fannie Stock Up on Probe's Halt; Little Effect Seen

Article excerpt

WASHINGTON -- Fannie Mae received a boost from investors after announcing Thursday morning that the Justice Department has dropped its investigation of the government-sponsored enterprise's financial restatement.

Fannie's stock rose more than 5% in afternoon trading and ended the day up 4.8% at $51.53 a share.

But observers and analysts largely downplayed the news, suggesting that it represented merely a short-term gain.

"Fannie is still spending a billion and a half dollars a year on accountants," said Paul Miller, a financial analyst with Friedman, Billings, Ramsey & Co. Inc. "It still hasn't gotten a restatement done. That's the real issue. They still have a capital surcharge on them, and the fundamentals of the business are still weak."

The GSE first learned it was under investigation in October 2004, but the Justice Department's decision to end its inquiry means no criminal charges will be filed. The U.S. Attorney's Office for the District of Columbia did not explain its decision, and a spokesman would not discuss it.

Fannie said that it is no longer the subject of an investigation, but it did not say whether the Justice Department is still investigating Franklin Raines, its former chief executive officer, and Timothy Howard, its former chief financial officer. Both executives were ousted in December 2004, after the Securities and Exchange Commission said Fannie had to restate earnings for 2001 through 2004.

Attorneys for Mr. Raines and Mr. Howard did not return calls for comment.

Daniel Mudd, Fannie's current CEO, said in a press release Thursday, "We will continue to work closely and cooperatively with our regulators as we move forward to carry out the terms of our agreements, complete our restatement, and build a better company."

Freddie Mac is still being investigated by the U.S. …

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