Troubled siblings Freddie Mac and Fannie Mae have watched their shares take a sharp tumble today after UBS downgraded both companies from buy to neutral. In a note, UBS stated the somewhat-obvious motivation for the downgrade apparently, credit pressures are eroding the earnings-per-share and dividend prospects for the federally sponsored lenders. The dual downgrade has had a notable effect, with FRE trading at a loss of more than 8% and FNM down nearly 10% as we head into the afternoon.
Unfortunately, the duo are vulnerable to further downgrades from brokerage firms. Between the pair, Zacks reports that 5 strong buys and 3 buys are still on the table, along with 9 holds and 3 strong sells. Meanwhile, option traders are displaying a rather alarming lack of pessimism toward the underperforming siblings FRE's Schaeffer's put/call open interest ratio of 1.09 is near the middle of its annual range, as is FNM's ratio of 1.08.
While both stocks have plunged amid the recent credit-market morass, it may interest those of you with a morbid curiosity to know that Fannie Mae has outperformed Freddie Mac on a relative-strength basis since mid-2006... though, in light of recent developments, this probably falls under the category of cold comfort for Fannie Mae investors.