Fannie, Freddie nosedive as Treasury unveils new wind-down plan; Hatteras issue frees to trade

By Stephanie N. Rotondo

Phoenix, Aug. 17 - Fannie Mae and Freddie Mac were in the news again Friday as the federal government unveiled a plan that would wind down the mortgage giants.

Under the terms of the plan, the government would take all profits from the companies in order to pay back taxpayers.

The news did not bode well for the companies' preferreds.

In the primary, a trader said Hatteras Financial Corp.'s new $250 million of 7.625% series A cumulative redeemable perpetual preferred stock freed from the syndicate. The deal priced Thursday.

Wells Fargo & Co.'s $675 million of 5.2% class A noncumulative perpetual preferred stock, series N, were admitted for trading on the New York Stock Exchange under the symbol "WFCPN." The securities priced Aug. 9.

"I'm still hearing there's a busy new issue market," a trader said of the coming weeks.

The Fannie-Freddie meltdown

"They're all down 70% to 80% today," a trader said at midafternoon of Fannie and Freddie preferreds after the federal government unveiled its plan for the government-sponsored entities.

Investors are not only wondering if the government intends to bankrupt Fannie and Freddie once the plan ends, he said, but also if the preferreds will ever be worth anything or "is it just dead money?"

The preferreds did rebound a bit, but they were still down considerably by the bell.

Freddie's 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dropped $1.80, or 63.6%, to $1.03. Fannie's 8.25% fixed-to-floating-rate noncumulative series S preferreds (OTCBB: FNMAS) fell $1.30, or 55.32%, to $1.05, and the 8.25% series T noncumulative preferreds (OTCBB: FNMAT) declined $1.38, or 51.89%, to $1.275.

The Treasury Department said Friday that it is redoing the terms of a taxpayer bailout for Fannie and Freddie, requiring that the companies decrease their mortgage portfolios by 15% per year, up from 10%.

Additionally, the new terms would cancel a 10% dividend on investments sold to the Treasury, with the government instead taking any profits the mortgage giants post.

Earlier this month, Freddie reported a $3 billion quarterly profit, while Fannie posted a $5 billion profit.

The companies were taken over by government conservators in September 2008. Since that time, they have taken nearly $150 billion of taxpayer funds.

Hatteras frees from syndicate

Hatteras Financial's $250 million of 7.625% series A cumulative redeemable perpetual preferred stock freed to trade Friday, according to a trader.

The trader said the issue was trading at $24.85 at midafternoon.

After the close, a trader quoted the preferreds at $24.85 bid, $24.92 offered.

The deal priced Thursday.

Hatteras is applying to list the new preferreds on the New York Stock Exchange under the ticker symbol "HTSPA." Settlement is expected Aug. 27.

Wells Fargo Securities LLC, Citigroup Global Markets Inc., UBS Securities LLC and Bank of America Merrill Lynch are the joint bookrunning mangers. RBC Capital Markets LLC, Stifel Nicolaus & Co. Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Jefferies & Co., J.P. Morgan Securities LLC, BB&T Capital Markets, Keefe, Bruyette & Woods Inc. and Sterne Agee & Leach Inc. are the co-managers.

Proceeds will be used to buy short-term agency securities and for general corporate purposes, including the repayment of outstanding debt, the purchase of hedging instruments and other general purposes.

Hatteras is based in Winston-Salem, N.C.

Wells Fargo preferreds list

Wells Fargo's recently priced 5.2% class A noncumulative perpetual preferred stock, series N, listed on the NYSE on Friday. The ticker symbol is "WFCPN."

At midday, the preferreds were trading at $24.99, down 8 cents from the open. At the close, the issue was down 9 cents at $24.98.

Wells Fargo is a San Francisco-based bank.

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