Fannie Mae (FNMA)

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By Christina Rexrode

NEW YORK (MarketWatch)--Mortgage giants Fannie Mae and Freddie Mac shot higher Wednesday, on reports that hedge funds and private-equity firms are preparing a pitch to take over large parts of the companies.

Fannie Mae (FNMA) was up more than 4%, while Freddie Mac(FMCC) gained more than 3%.

The news, reported by the Financial Times , is significant both to the mortgage industry and the U.S. government. Fannie and Freddie have essentially been owned by the government since 2008, when they nearly collapsed under the weight of bad mortgages. Now, they are turning profits again, but the government hasn't outlined a game plan for them to get out from under government control. Read more about developments regarding Fannie and Freddie here.

Broadly, though, financial stocks were down. Most of the biggest U.S. banks traded lower. Bank of America Corp. , (BAC) the exception, was up by a tiny 0.1%. Wells Fargo & Co. (WFC) chief financial officer Tim Sloan told a banking conference in New York that mortgage originations will continue to slip, and net interest margins will remain under pressure -- familiar themes by now in the banking industry, but discouraging nonetheless.
The stock declines also followed tough talk Tuesday from the chief of the Consumer Financial Protection Bureau , Richard Cordray , as well as U.S. Sen. Elizabeth Warren of Massachusetts .

The Financial Times also reported that the U.K. banking regulator had expanded its investigation into allegations of foreign-exchange rate fixing. The story, which cited unnamed sources, said that Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) were included in the probe.

KBW analysts led by Andrew Stimpson estimated that the civil litigation costs of foreign exchange investigations, combined with Libor/Euribor investigations and actions from the Federal Housing Finance Agency , could cost the banking industry almost $100 billion over the next decade.

"Meanwhile, regulators and politicians on both sides of the Atlantic seem keen to pursue constantly changing (and rising) capital requirements," the analysts added, "confusing the ability of investors to form an opinion on future profitability."
British bank Barclays PLC (BCS) was down 3% after announcing that its head of compliance and government and regulatory relations has resigned. The bank has been wading through the fallout of a Libor-fixing scandal since summer 2012. It is also among the banks that say they're cooperating with authorities who are investigating foreign-exchange rate fixing.

MBIA Inc. (MBI) was up more than 1% after reporting third-quarter results that beat expectations on earnings but missed on sales.

Mark Palmer at BTIG Research said earnings were "a bit sloppy," but praised the CEO for an analyst call that helped clear up questions "that had been lingering in the minds of many investors"--a marked improvement compared with the "confusion and some false impressions" of the second-quarter call, Palmer said.

KCG Holdings Inc. (KCG) was down 1% after disclosing that it needed to restate some of the previous financial statements of Getco . KCG Holdings is the company that was formed when Getco bought Knight Capital , which was felled by a technical glitch in summer 2012 that briefly disrupted stock trading.

Sandler O'Neill analyst Richard Repetto raised his predictions for the KCG stock price, and said that the Knight Capital side would be taking over accounting processes and controls in the combined new company.
"Hopefully," he wrote, "with the ( Knight Capital ) team inheriting the accounting functions, reporting issues should be cleared up."

- Christina Rexrode ; 415-439-6400; [e-mail]
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(END) Dow Jones Newswires
11-13-13 1141ET