Richard X. Bove: Critical Periods In Fannie Mae’s History

Richard X. Bove: Critical Periods In Fannie Mae’s History

Richard X. Bove, Vice President Equity Research at Rafferty Capital Markets, says that the government will settle its litigation with Fannie Mae shareholders in 2016.

In 2014, I began a policy of picking five stocks on the July 4th weekend that I thought would beat the markets in the following 12 months. As shown in our comment on July 6, 2015, this first attempt worked out well with the Top 5 growing by 8.2% in a market that was up by 4.6%. Greece delayed the picks this year. However, the new list is shown below. I would have added Fannie Mae but the issue is priced below $5.00 per share.

The prices shown in the table below are as of yesterday’s close. However, my understanding of SEC rules indicates that the starting price must be based on the close of the day the recommendations are issued so I will reset the prices to begin at day’s end July 8, 2015.

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Critical periods in Fannie Mae’s history

Finally, information is being released concerning the state of Fannie Mae at the end of 2008 and the beginning of 2012. These were two critical periods in the company’s history because they reflected:

  • The placement of the company into a conservatorship; and
  • The disenfranchisement of the private shareholders.

Apparently, the government believed that Fannie Mae was key to recovering the housing market in 2008. Therefore, it took over the company and used it to facilitate stabilizing housing. This was a brilliant move that was very successful.

The only problem is that along the way the government wiped out shareholder values – i.e., expropriated private property without any compensation. This is illegal and the likelihood is growing that the government will settle its litigation with meaningful benefits to the private shareholder in 2016.

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