Magazine article American Banker

Recaps Take Fannie, Ahmanson in Opposite Directions

Magazine article American Banker

Recaps Take Fannie, Ahmanson in Opposite Directions

Article excerpt

Two financial giants, Fannie Mae and H.F. Ahmanson & Co., have each embarked on recapitalization programs in recent months, but with divergent reactions from investors. While the shares of Fannie Mae have climbed briskly, Ahmanson's stock has been flat at best in a rising market.

Fannie Mae announced early last month that it was issuing $1 billion of preferred stock and would use most of the proceeds to repurchase common shares. It also split the shares four-for-one and donated $350 million to its own foundation.

Ahmanson, parent of Home Savings of America, the nation's largest thrift, announced last October that it would repurchase some $250 million of its shares. And last month, it told American Banker it would shrink the size of its mortgage portfolio this year and use the proceeds to further repurchase shares.

Both strategies are aimed at strengthening profitability. Frank Raines, vice chairman of Fannie Mae, said the switch to preferred shares should leverage the profits available for the common, and the charitable contribution would end the need to fund the program every year.

At Ahmanson, the idea is to shed mortgages that are not providing an adequate return while continuing to function as a mortgage banking operation, selling most of the loans it originates in the secondary market. It is also planning a substantial expansion in consumer finance.

Why, then, the different reactions to apparently similar strategies?

Tom O'Donnell, an analyst with Smith Barney & Co., New York, said he thinks both strategies are positive. "Fannie Mae has come of age in terms of capital-structure management," he said. But investors appear to have misunderstood Ahmanson's moves, and he said he thinks the softness in the stock price provides a buying opportunity.

"The company is far from brain dead as many other thrifts appear to be," said Mr. …

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