The Real Deal New York

Here’s why shares of Fannie and Freddie are up 170%

Funds are betting that the GSEs will soon be privatized
January 28, 2019 09:00AM

Fannie Mae headquarters in Washington, D.C. (Credit: via Flickr and iStock)

The government’s indication that it may privatize Fannie Mae and Freddie Mac has sparked a surge in shares and profits for investors in the two mortgage giants.

Lawmakers have been trying and failing to overhaul the government-sponsored entities for more than 10 years since the financial crisis. But Trump administration officials have made recent statements indicating they plan to take the companies out of conservatorship soon, sending common shares of the companies up by more than 170 percent, according to the Wall Street Journal. Preferred shares are up more than 37 percent.

Hedge funds have been betting that Fannie and Freddie would be privatized for years, but their share prices have swung wildly due to different legal and political developments. Investors include Discovery Capital Management, Blackstone Group and Pershing Square Capital Management, according to the report.

There is still no guarantee that a deal to take the firms out of conservatorship will actually happen, especially given how politically fraught the issue is.

But policy analyst David Barrosse told the Journal he expected that the move would take place.

“It’s night and day,” he said. “We think that the signs are there for anyone to see, in public statements: This is happening now.” [WSJ] – Eddie Small