Magazine article American Banker

Asia Fears Seen Giving Boost to Stock of Fannie, Freddie

Magazine article American Banker

Asia Fears Seen Giving Boost to Stock of Fannie, Freddie

Article excerpt

Fannie Mae's and Freddie Mac's stock prices have lagged behind the S&P 500 and the growth rate of their mortgage portfolios this year, but analysts say the shares could rebound.

Indeed, with concerns over Asian economies driving investors to companies with little foreign exposure, the stocks have had an upswing in recent days. Fannie Mae was trading at $62.1875 at midday on Tuesday, up from $58.875 last Thursday. Freddie Mac was at $47, up from $44.188 last Thursday.

Fannie and Freddie's stocks have been slower performers because of some profit taking earlier in the year, the agencies' lack of involvement in mergers and acquisitions, the ongoing concern of margin contraction, and sudden weakness in the bond market, said Thomas O'Donnell, senior analyst at Salomon Smith Barney.

Though these factors have kept their stocks from high-speed growth, Fannie, Freddie, and thrifts are generally expected to benefit because they are not exposed to Asia. "They're well insulated from credit concerns and international concerns," Mr. O'Donnell said.

Salomon Smith Barney's target prices for the next 12 to 18 months are $75 for Fannie Mae and $56 for Freddie Mac.

Both Fannie and Freddie are building their portfolios of retained loans and mortgage-backed securities at a rapid pace, said Jonathan E. Gray, principal at Sanford C. Bernstein & Co.

Mr. Gray, noting that the balance sheet generates 65% to 75% of earnings for the two companies, predicted that Freddie's balance sheet would grow 22% this year, and Fannie's would gain 15%. …

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