Dees Stribling, Contributing Editor
Washington, D.C.–As of early July, mortgage giants Fannie Mae and Freddie Mac will no longer trade on the New York Stock Exchange, a process known as delisting. Going forward, shares in the government-sponsored enterprises (government-controlled, these days) will be traded on the smaller Over-the-Counter Bulletin Board.
The move is being made in accordance with a directive by the Federal Housing Finance Agency (FHFA), Freddie Mac’s conservator, requiring the GSEs to delist both their common and preferred shares from the NYSE. The directive followed notification from the exchange that Fannie Mae no longer met its listing standards. According to NYSE rules, delisting a stock can begin when its average daily closing price remains under $1 for 30 days, though in some cases the exchange gives a company extra time to get its stock up.
Currently, only about a dozen NYSE stocks trade for under $1, now including Fannie and Freddie. About a year ago, more than 100 were, but the general recovery of the equity markets since then has raised most of those stocks out of delisting danger.
Often delisting is a sign that a company is impaired in some way and not likely to recover–famed examples of delisting in the 2000s include the doomed Enron and the equally doomed Washington Mutual–but some companies survive even as their stocks are traded over the counter. Certainly the two GSEs count as impaired. Fannie Mae’s market cap shrank from $38.9 billion at the end of 2007 to a current level of $640 million, while Freddie Mac’s went from $26.2 billion at the end of 2007 to $500 million now.
In the last year, Fannie Mae common stock briefly traded as high as about $2 a share, but mostly has hovered just above $1. After mid-May 2010, it ranged below $1 a share most of the time, and after word of the delisting broke, its price dropped even more, trading around 40 cents a share on Friday. Freddie Mac followed a similar pattern, and as of Friday is also trading for about 40 cents a share.
The federal government has shored up the two GSEs to the tune of about $145 billion since they were put in conservatorship nearly two years ago, and more bailout is expected, whatever Congress eventually does to reform or restructure the companies. Thus their common stock is widely regarded to have little if any real value at all, making it fodder for high-frequency traders and other speculators.
Yet Fannie Mae and Freddie Mac are also key to putting a floor under both the single- and multifamily U.S. housing markets by providing essential liquidity to the mortgage markets. In 2009, for example, Fannie Mae, mostly through DUS lenders, provided $19.8 billion in debt financing for the U.S. multifamily rental housing market.
In any case, the FHFA denies that the delisting is a death knell. “FHFA’s determination to direct each company to delist does not constitute any reflection on either enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator,” Edward J. DeMarco, the FHFA Acting Director, said in a statement. “The determination to direct delisting is related to stock exchange requirements for maintaining price levels and curing deficiencies.”