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
|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%|
|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%|
|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
|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%|
|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%|
|Suntrust Banks (STI)||50.93||16,366,800||+5.51||+12.13%|
|Zions Bancorp (ZION)||36.66||16,155,500||+3.69||+11.19%|
|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?