Winners and Losers of the Fannie Mae, Freddie Mac Bailout

Today I’ve been thinking about who the winners and losers of the government bailout of Fannie Mae (FNM) and Freddie Mac (FRE) will be. It will take some time to sort the impact of unprecedented government intervention on the financial markets. However, the market is already betting on how this “black swan” event will play out.

Placing the two mortgage giants into “conservatorship” to ensure that each company maintains a positive net worth will boost investor confidence with GSE debt and mortgage backed securities. However, the Fannie Mae and Freddie Mac common stock and preferred shareholders are clearly the losers. Beyond these direct impacts, within minutes of the opening bell, the market was already voting on the perceived winners and losers of this major government takeover. Using the highest volume percent gainers and decliners in the stock market give us some insight into what the market is predicting.

Highest Volume Price Decliners

Company Price Volume Change Percent
Lehman Brothers (LEH) 14.15 111,389,898 -2.05 -12.65%
UAL Corp (UAUA) 10.92 54,654,898 -1.38 -11.22%
Continental Airlines (CAL) 17.10 26,362,100 -0.96 -5.32%
Fannie Mae Preferred S (FNM-S) 3.42 26,041,102 -0.96 -5.32%
Sovereign Bancorp (SOV) 9.02 24,732,699 -0.64 -6.63%
Sandisk (SNDK) 16.60 22,696,100 -1.04 -5.90%
ON Semiconductor Corp (ONNN) 7.75 21,748,102 -0.51 -6.17%
Yamana Gold Inc. (AUY) 8.49 18,951,801 -0.73 -7.92%
Freddie Mac Preferred Z (FRE-Z) 2.87 18,535,900 -10.69 -78.83%
Potash Corp Saskatchewan (POT) 153.33 17,179,600 -8.72 -5.38%
RF Micro Devices (RFMD) 3.22 17,086,900 -0.38 -10.56%
Arch Coal (ACI) 37.75 15,636,800 -5.54 -12.80%
Barrick Gold (ABX) 29.41 12,703,200 -1.53 -4.95%
Goldcorp (GG) 27.59 12,392,601 -1.61 -5.51%
Peabody Energy Corp (BTU) 49.92 11,935,500 -3.38 -6.34%

A quick review of the above list shows that GSE preferred shares and holders of GSE preferred shares (Sovereign Bancorp and potentially Lehman Brothers) will likely be losers of the bailout. UAL looks like it was the victim of old news unrelated to the bailout, but the reaction to the old 2002 misdated bankruptcy goes to show you how jumpy this market is. Interestingly, there are quite a few gold names on the list above, I guess in reaction to the changing macroeconomic landscape. The decline of Potash Corp of Saskatchewan might indicate that the market expects a decline in the energy driven agricultural sector. It also looks like coal might also take a hit as indicated by the high volume declines in shares of Arch Coal and Peabody Energy Corp.

Highest Volume Price Advancers

Company Price Volume Change Percent
Citigroup Inc. (C) 20.32 170,433,906 +1.25 +6.55%
Bank of America (BAC) 34.73 164,211,391 +2.50 +7.76%
Wachovia (WB) 18.99 140,700,000 +2.24 +13.37%
Wells Fargo & Co (WFC) 33.56 133,161,500 +2.36 +7.56%
Regions Financial Corp (RF) 12.24 40,576,000 +1.15 +10.37%
National City (NCC) 5.15 32,896,902 +0.33 +6.85%
Annaly Capital Management (NLY) 16.88 30,483,199 +1.56 +10.18%
Pulte Homes (PHM) 16.22 25,298,900 +1.64 +11.25%
Bank of New York Mellon (BK) 39.78 24,594,000 +3.44 +9.47%
Capital One Financial (COF) 48.73 21,247,400 +4.02 +8.99%
D R Horton (DHI) 14.11 20,345,799 +1.53 +12.16%
BB&T (BBT) 34.27 18,812,699 +2.45 +7.70%
Suntrust Banks (STI) 50.93 16,366,800 +5.51 +12.13%
Zions Bancorp (ZION) 36.66 16,155,500 +3.69 +11.19%
Lennar (LEN) 14.95 15,607,500 +1.39 +10.25%
CIT Group Inc (CIT) 11.53 15,412,601 +0.80 +7.46%
KB Home (KBH) 23.54 13,834,900 +2.93 +14.22%
Toll Brothers Inc (TOL) 26.47 13,723,300 +2.27 +9.38%

The winners clearly appear to be the national and regional banks along with home builders. There are also several mortgage and credit providers on the list. I’m personally not quite convinced that home builders are in the clear yet. While the governments actions may have potentially helped lower the cost of mortgages, I still think there is too much home inventory out there. It will be tough for earnings to recover in this sector.

It is very unlikely that I will act solely on any of the information above. However, I believe looking at some of these big market days that have significant financial events helps me better understand some of the larger scale sector sifts that may be occurring.  I can then try to understand some of these larger trends and focus my research on sectors that might yield potential value opportunities. It is also handy to preserve this market information for future reference. What is your take on yesterday’s market reaction to the Fannie Mae and Freddie Mac government takeovers?

10 thoughts on “Winners and Losers of the Fannie Mae, Freddie Mac Bailout

  • September 9, 2008 at 7:39 pm

    What is your take on yesterday’s market reaction to the Fannie Mae and Freddie Mac government takeovers?

    it wasn’t much of a rally to give any confidence.

  • September 10, 2008 at 10:08 am

    I think that if you want to see the big picture you can’t look into a single day in the markets. Most of the winners have lost ground and are trading below friday’s close. I was actually surprised that we rallied on Monday. I expected a drop.. But since we rallied, I think this might have marked a short term top.. And the market direction could be lower in the intermediate term..

  • September 10, 2008 at 9:44 pm

    I expected the market to go up on Monday, because a major market uncertainty was removed. However, I do agree with you that a single day does not provide the “big picture”. I just wanted to get a peek at the sentiment of institutional investors. The “big boys” are paid to make quick decisions regarding major market events. Their big moves are fairly easy to spot. The key to remember is that their initial reactions are not necessarily right, especially the human instincts to react irrationally to financial events.

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  • September 12, 2008 at 2:18 pm

    Actually the reason why I thought the market would go lower is because FNM and FRE were going to be “nationalized” in a way by the govt. Since these two were one of the largest and most prominent forces in the US financial markets, it makes sense that if the largest co’s are not immuned to stock price deflation, then no financial company price is immuned to further losses. That being said co’s like LEH, WM opened higher on monday, but this looked a lot like the crowd/public amateurs buying in the first 30 mins.

    Of course this comment is concerned more by trading and not investing, which I am mostly known for. It will be interesting to see if LEH will find a buyer this weekend. If they do monday morning could be a nice surprise for today’s LEH bulls..

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  • September 17, 2008 at 11:08 am

    This is a Joke. Every Bail-Out cost everyone of us. Now AIG get’s the same thing? If you like or Hate Rush He is insured by AIG and just got a $400 Million Dollars. Now we all get to pay Rush’s insurance and we didn’t get to vote on any of this. AIG, Mac & Mae should have all fell to the ground. That’s how Capitalisum works. Every time the Fed’s setp in we are 1 step closer to sochalisum and there’s noting any of us can do about it, but Vote this crooks out of office.

  • September 19, 2008 at 8:16 pm

    from a historical standpoint it’s hard to object to the government’s mass bailouts since similar debt-producing methods were put into action to save the U.S. from the Depression; maybe we’ve been headed for socialism this entire time…

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