Fannie’s and Freddie’s ‘Release’ Date? See You in 2037
pmuolo@imfpubs.com
In roughly 15 years, Fannie Mae and Freddie Mac could amass enough capital to meet regulatory minimum requirements, paving the way for their release from conservatorship, according to a new report from Keefe, Bruyette & Woods.
In 2021, the two GSEs — wards of the government since the fall of 2008 — earned a combined $34.3 billion.
Presently, there is no government-backed policy consensus that could lead to the conservatorships ending any time soon, even though Fannie and Freddie have been profitable for roughly a decade.
In its report, the research firm writes, “By 2036, the Treasury's aggregate senior preferred including liquidation preference will have grown to nearly $550 billion per our latest calculation. We assign a high probability that Treasury will convert its senior preferred to common at that point, an assumption premised on Treasury having little reason to freely give up the value of its position"...
KBR forecasts a combined market cap of $212 billion in 2036. “Treasury already effectively owns 79.9% of that via its warrants. However, the conversion of its senior preferred could add nearly 20% ($42 billion) to its ownership. Treasury could then potentially monetize its 99% stake through secondary offerings over time (although we would acknowledge that there might be limited appetite for a financial with a 6% ROE, so other changes might need to be made to the business model as well).”
The Treasury Department owns the senior preferred class of stock in Fannie and Freddie, an ownership stake created when the two were seized by Uncle Sam. The common continues to trade on the OTC, but at about $0.84 a unit for
