Fannie Mae, Freddie Mac rise as Ackman bullish, lawsuit in focus; Bank of America softens

By Stephanie N. Rotondo

Phoenix, Feb. 17 – Fannie Mae and Freddie Mac preferreds were in focus in Tuesday trading, a trader reported, following a round of news items through the long weekend.

On Friday, activist investor Bill Ackman made some bullish comments about the government-sponsored entities. On Saturday, the New York Times followed up with a piece about a shareholder lawsuit against the government in regards to a takeover of the agencies’ profits. According to the article, the Justice Department has asserted presidential privilege on at least 45 documents – raising questions about what those documents contain.

The article further alleged that the government’s use of privilege was nothing more than an attempt to hide something.

“Shocking,” a trader said, noting that the news had pushed the two mortgage giants’ $50-par preferreds up about 60 cents to 70 cents and the $25-par paper up 35 cents.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) improved 41 cents, or 9.43%, to $4.76. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) gained 50 cents, or 12.2%, to $4.60.

Overall, the preferred space was looking to climb higher in early trading, as the Wells Fargo Hybrid and Preferred Securities index inched up 3 basis points by mid-morning. However, the index ended the day weaker following weakness in the Treasury market, a market source said.

The index finished down 24 bps.

The source also noted that liquidity was generally thin, given the holiday weekend and a storm that was ravaging New York.

BofA busy, weaker

Bank of America Corp.’s preferreds were trading busily Tuesday, though with no real news to act as a catalyst.

The 6.5% series Y noncumulative preferreds (NYSE: BACPY) closed 13 cents weaker at $25.20, on about 770,000 shares trading. The 6.625% series W noncumulative preferreds (NYSE: BACPW) meantime ended down a dime at $25.41.

About 333,000 shares changed hands.

The Charlotte, N.C-based bank’s Countrywide Financial Corp.-linked 6.75% trust preferred securities (NYSE: CFCPA) were also active and lower on the day.

The securities ended at $25.76, off 3 cents. Approximately 533,000 shares traded.

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