Are Fannie Mae’s common shares worth anything ?
DICK Bove otherwise known as "THE DICK"
March 24, 2020 Update: Both the common and preferred shares of Fannie Mae and Freddie Mac have taken a beating alongside the rest of the stock market. Both issues are also soaring today with the rest of the market. However, analyst Dick Bove of Odeon Capital notes that there are some distinct differences between the common and preferred shares.
In a note on Monday, he argued again that investors should buy the preferred shares and avoid the common shares. He believes the value of the common shares is driven by the outlook for both government-sponsored enterprises and the actions taken by the Trump administration to free them from their conservatorships.
Bove also believes the Trump administration’s actions will cause both GSEs to lose market share and reduce the profits on the units they sell. He also believes the administration won’t do anything to release Fannie and Freddie from conservatorship in less than two to five years. He argues that the common shares “have little if any value.”
However, Tim Pagliara and Grant Stark of CapWealth Advisors told ValueWalk in an email that the common shares do hold value. They believe the outlook of Fannie Mae and Freddie Mac is good and that no other company can do mortgages as well as the GSEs have been doing them. They do prefer the preferred shares of Fannie and Freddie, but they still see long-term value in the common shares as well.
On the other hand, Bove notes that the value of the preferred shares of Fannie Mae and Freddie Mac is driven by the court cases. The courts have been increasingly siding with shareholders. Plaintiffs argue that the government took their private property without just compensation and that they should receive something for their investment.
