Fannie, Freddie preferreds remain active, volatile as oral arguments begin

By Stephanie N. Rotondo

Seattle, April 15 – Fannie Mae and Freddie Mac preferreds were in focus in early Friday trading, as oral arguments in a shareholder lawsuit against the federal government were slated to begin in the U.S. Court of Appeals.

The GSE-linked securities were “all over the place,” a trader said. “People are probably taking profits in case the oral arguments today do not go their way.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off 34 cents, or 8%, at $3.91 at mid-morning. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were down 27 cents, or 6.44%, at $3.92.

On Tuesday, the preferreds got a pop as the market digested a slew of new unsealed documents related to a court case stemming from the government’s 2012 decision to commandeer a majority of the GSEs’ profits. The gains continued into Wednesday, and the mortgage giants were dominating overall trading.

The issues started trading more mixed on Thursday.

The documents, which were unsealed by judge Margaret Sweeney, appear to hold up the plaintiffs’ allegations that the government knew the agencies were returning to profitability before it made its decision to sweep profits. The sweep was predicated on the notion that the government needed to protect taxpayers in case of a need for another bailout.

Looking ahead, a trader said now that bank earnings were coming out – JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., among others, all reported this week – the new issue calendar should start to build up.

“I would not be surprised if we see quite a few deals next week,” the trader said. Chatter is that Morgan Stanley & Co. Inc. could be among those deals, though there was “nothing concrete” in those rumors, he added.

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