President Trump To Decide On Fannie And Freddie Recap And Release

2025-05-26 13:15:03 ET

Summary

• I recommend junior preferred shares of Fannie Mae and Freddie Mac, as they offer significant upside and anti-dilution protection in any likely restructuring scenario.
• Common shares appear overvalued, already pricing in a successful recap and release, with little realistic upside based on my valuation models and government analysis.
• Trump's administration, with aligned FHFA and Treasury leadership, is poised to decide on recap and release within 90 days, making privatization likely this term.
• Any restructuring will likely involve conversion of government equity stakes, with junior preferreds made whole, while common shareholders face dilution and limited gains.

Fannie Mae ( FNMA ) and Freddie Mac ( FMCC ) have been retaining earnings since President Trump allowed them to in 2019 as part of his plan to reprivatize them. The main blocker to privatization is a vanilla equity restructuring of the government's equity stake. Right now, the Senior Preferred Stock Purchase Agreement's existence on the balance sheet effectively prevents the companies from being able to meet ERCF requirements, as well as by blocking Fannie and Freddie's ability to attract and raise equity capital....

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