Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag - FNM & FRE



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.

Professor Succo,

Can you provide a take on the increased disconnect between Fannie Mae (FNM) & Freddie Mac (FRE)?

Much Thanks,
Minyan CK

I am currently short FNM and long FRE and long gamma on both; so as the two diverge that position gets larger. I am not anywhere near taking it off, although I will adjust it as the spread increases.

FRE is about 6 months to a year ahead of FNM in the process of "cleaning up its act" and most of the news is out in FRE while I believe we will continue to see disappointing news for shareholders of FNM. FNM is being "neutered" while FRE is already there.

FNM has about twice the leverage (52 times versus 27 times) as FRE. As leverage comes down in FNM, they will lose market share while FRE is stable.

Valuation parameters cannot be used because almost all of the assumptions for FNM are and will continue to change. The only one that has relevance in my opinion at this juncture is price to book value: FNM trades at 2.5 times book value and FRE trades at 1.7 times).

The only Wall Street firm that dares to tell some truth about this situation is Morgan Stanley. They still cannot venture to say sell FNM, but have demurely suggested preferring FRE to FNM.

Prof. Succo

< Previous
  • 1
Next >
position in fnm, fre

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos