Fannie, Freddie: The biggest losers

Fannie, Freddie: The biggest losers

Investors in Fannie Mae and Freddie Mac face massive losses when trading opens Monday.
By Colin Barr, senior writer, Fortune

SmartStops comment: Only a few months ago these stocks were considered safe investments that were widely owned by banks and conservative institutions. Now FNM and FRE are close to worthless. (SmartStops would have had you out in the mid $20s on June 9th.) If you think that you own quality stocks that are so safe that you don’t need protection then you are clearly mistaken. Even the preferred shareholders are in trouble. Look at the list of supposedly knowledgeable investors and financial institutions that could have saved fortunes by simply using SmartStops.

Excerpts: NEW YORK (Fortune) -- Big investors in Fannie Mae and Freddie Mac face a brutal Monday. Shares in the mortgage giants, which have already lost 90% of their value over the past year, are likely to plunge anew in the wake of the government's announcement Sunday that it is taking control of the companies and ending the payment of common and preferred dividends.
The prospect of a virtual wipeout of existing Fannie and Freddie preferred shares could lead to declines Monday in the shares of regional banks and major insurers that hold the shares. Among the holders of Fannie and Freddie preferred issues are Genworth Financial (GNW, Fortune 500) and MetLife (MET, Fortune 500).
The government intervention comes just over a month after Legg Mason's Miller reported a sizeable purchase of Freddie shares. Miller came to fame with a 15-year run of beating the S&P 500. But that streak ended in 2006, and since then his Legg Mason Value Trust has lagged far behind the market.
Miller's run of poor results hasn't made him any less aggressive, however. He has owned Freddie shares for some time but has been doubling down on the company as its shares plunged over the past year. Legg Mason owned 15 million shares at the end of 2007, when Freddie stock was fetching $34 a share in the market. He then boosted that figure to 50 million in the first quarter, as shares dropped into the teens in the wake of the collapse of Bear Stearns, and 80 million at July 31, when the price was below $10.
If the outlook for Freddie shares - which closed Friday at $5.10 but traded as low as $3.50 in the after-hours session when news of the Treasury plan began to circulate - is bleak, one ray of hope comes from the March collapse of Bear Stearns. Those shares were to be sold to J.P. Morgan Chase at $2 apiece in a Fed-brokered rescue of Bear, but the shares traded sharply above that level for a week, until the deal was renegotiated at $10.

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