Fannie, Freddie Shares Could Be Wiped Out!

“My feeling is, if the Treasury comes in with any kind of money whatsoever, shareholders of Fannie and Freddie will get wiped out or diluted away in an extreme manner,” says FBR capital markets senior analyst Paul Miller on Fast Money.

Of course he was commenting on widely reported expectations that the Treasury is close to finalizing a plan to backstop Fannie Mae

FNM loading...

Quote  |  Chart  |  News  |  Profile

[FNM  Loading...      ()   ] and Freddie Mac

FRE loading...

Quote  |  Chart  |  News  |  Profile

[FRE  Loading...      ()   ] .

Bad news if you're holding Fannie and Freddie but probably good news if you're holding virtually any other stock in the sector. That's because Miller expects the move to spark a bear market rally in financials. “On the flip side I think the market will see some kind of major financials rally for the next couple days until we digest the plan,” he says.

Of course, let's make sure it's clear this is all market speculation. But this is what we're hearing: The plan will likely include sweeping changes in senior management at both firms with specific details due over the week-end.

“They will likely rely on a creative use of the Treasury’s new authority to inject capital," explains CNBC's senior economics reporter Steve Liesman on Fast Money. “It seems like this could be the big thing we’ve been waiting for.”

Fannie and Freddie can’t raise capital in the private markets although they can sell debt and according to Liesman it seems like that problem is what’s motivating the Treasury.

Also On September 30^th when the FAS 157 accounting rule comes into effect, losses will have to be recognized and this might be a way for Treasury to get in front of those losses.

When the news hit the Street the optimism after hours was tremendous with shares of Fannie soaring 20%. Also the Financial Select Sector SPDR  

XLF loading...

Quote  |  Chart  |  News  |  Profile

[XLF  Loading...      ()   ] and SPDR

SPY loading...

Quote  |  Chart  |  News  |  Profile

[SPY  Loading...      ()   ] made gains after hours suggesting a spike on Monday.  However those gains did not hold.

I have to agree that the Treasury backstop is not good for shareholders, says Karen Finerman. How they can do this outside of a bankruptcy process is puzzling. And I have to think it’s bearish for the dollar and for Treasurys.

I think the play is to sell Fannie or Freddie on any kind of rally, muses Jeff Macke. That goes for the SPDR and XLF, too.

---------------(scroll down for more)---------------

FAST MONEY // Latest Rapid Recap

Go to Main Page

Current DateTime: 03:12:20 10 Feb 2012
LinksList Documentid: 26256943

• • Gene Munster Expects Apple Growth, Dividend
  • LinkedIn CEO Calms Post-Lockup Concerns
  • Anthony Scaramucci: S&P 500 Stocks Still Cheap
  • Home Builder Optimism Up, Industry Expert Says
  • Chart Patterns Suggest Pullback at Hand
  • UPDATE: Massive Trend Just Getting Underway in Financial Services: Finerman
  • Terranova: Beware Nuance Play On Apple Spike
  • Top Fashion Stocks for 2012
  • Pros Bullish On Visa, Even After It Hits a New High
  • Semantics Suggest Higher Bid Ahead for Illumina: Finerman

Current DateTime: 03:12:20 10 Feb 2012
LinksList Documentid: 26256941

• Super Traders Slideshow
• Daily Poll: Tell Us What You Think!
• Word On The Street

And one of the main drivers behind the move is that it should lower mortgage rates. Pete Najarian notes that the SPDR S&P Homebuilders XHB

XHB loading...

Quote  |  Chart  |  News  |  Profile

[XHB  Loading...      ()   ] also traded higher after hours, on this news.

"The government wants to get the housing market off the front pages, adds Miller. And one of the ways to do it is by getting Fannie and Freddie back in the game, hard!”

______________________________________________________
Got something to to say? Send us an e-mail at and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to .

Trader disclosure: On Sept 5, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (DIS), (ATVI); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (AAPL), (AAPL) Collar; Najarian Owns (RIMM) Call Spread; Najarian Owns (VMED) Puts; Najarian Owns (XLF), (XLF) Collar; Najarian Owns (ZMH) Calls; Najarian Owns (XLE) Call Spread; Najarian Owns (FTO) Calls; Najarian Owns (NOK) And Is Short (NOK) Calls; Finerman Owns (GS); Finerman's Firm Owns (MO), (MSFT), (NOK), (SUN), (TSO), (VLO); Finerman's Firm Owns (AAPL) Calls; Finerman's Firm And Finerman Own (C) Leaps; Finerman's Firm Owns (IRF) Calls; Finerman's Firm Is Short (BBT), (COF), (IYR), (IJR), (MDY), (SPY), (IWM); Finerman's Firm Is Short The British Pound