By Surojit Chatterjee: Subscribe to Surojit's RSS feed
June 16, 2010 7:52 PM EDT
Fannie Mae (NYSE.FNM) and Freddie Mac (NYSE.FRE), the largest residential mortgage lenders in the US, will have the trading of their shares stopped (de-listed) on the New York Stock Exchange (NYSE). The firms shares failed to meet the minimum trading price requirement, the Federal Housing Finance Agency (FHFA) said on Wednesday.
The federal agency said the two companies, which were taken under government control during the height of housing downturn in 2008, do not meet the exchange’s listing requirements. The stock market has ordered them to de-list their common and preferred securities. Their shares will continue to trade in the over-the-counter (OTC) market, however. The OTC trading is expected to start around July 8. The OTC ticker symbols for the two companies have not been assigned.
FHFA said the delisting order was not a result of the companies' performance. "FHFA's determination to direct each company to de-list does not constitute any reflection on either enterprise's current performance or future direction, nor does de-listing imply any other findings or determination on the part of FHFA as regulator or conservator," FHFA Acting Director Edward J. DeMarco said in a statement.
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The common shares of each company have been hovering near the NYSE-required minimum average closing price of $1 for much of the time since the conservatorships began in September 2008. Recently Fannie Mae shares were trading below $1 level while Freddie Mac shares were trading barely around the $1 threshold.
According to DeMarco, the agency had two choices: either de-list the shares or find a "cure" to restore the price. Because curing would not assure maintaining the minimum or avoiding loss of shareholder value, the regulator chose the de-listing option. "A voluntary delisting at this time simply makes sense and fits with the goal of a conservatorship to preserve and conserve assets," he added.
Following the delisting announcement, Fannie Mae said the move will not affect its business operations. Freddie Mac said it hopes "market makers demonstrate an interest" in trading in its shares. The companies said they will continue to file periodic reports to the Securities and Exchange Commission (SEC).
The de-listing announcement did not come as a surprise to market analysts. Analysts estimate that the government, which now owns 80 percent of Fannie Mae and Freddie Mac, could run up a bill as high as $1 trillion to fix the two companies.
Sean Egan, president of Haverford, Pennsylvania-based Egan-Jones Ratings Co., feels that if the housing market continues to weaken, the two companies could be forced to write off at least 20 percent of their loans and guarantees. "One trillion dollars is a reasonable worst-case scenario for the companies," Bloomberg quoted Egan as saying.
According to Edward Pinto, a former chief credit officer at Fannie Mae, "It is the mother of all bailouts."
Shares of Fannie Mae and Freddie Mac were trading down 42.78 percent and 44.37 percent at $0.52 and $0.68 on Wednesday at 12.38pm (EDT).
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