Wall Street Journal reports that the Trump administration will launch the initial public offering for Fannie Mae, the mortgage giant, and Freddie Mac in the second half of this year. This could be the biggest stock offer in US history.
The paper was told by people familiar with these discussions that the total valuation of the three companies may exceed $500 billion. In order to fund the $30 billion government plan, the company’s stock will be sold between 5 and 15 percent.
The two companies are currently being debated by officials as to whether they should be listed together or separately.
Both stocks rose sharply in the over-the counter trading. Fannie Mae was up by more than 20 percent and Freddie Mac nearly 18 percent.
The market’s potential return on bailouts during the crisis
Since 2008, Fannie Mae (formerly Freddie Mac) and Freddie Mac are under the federal conservatorship. They became insolvent due to subprime lending crisis.
Treasury Department bailed them out with funds from taxpayers in exchange for preferential shares that have generated billions in dividends.
Congress created the two to stabilize the housing market and ensure a constant supply of mortgage financing at affordable rates.
The collapse of these companies during the Financial Crisis highlighted risks on the mortgage market. Their subsequent control by the government became a symbol for federal intervention in housing.
An IPO to exit conservatorship would mark a major milestone.
Bill Pulte has suggested that the Federal Housing Finance Agency could allow the companies to sell their shares, while still under conservatorship. However, the details of such a plan are unclear.
Arguments in favor and against the sale of shares
Reuters reports that President Donald Trump held a meeting with CEOs of Citigroup, Bank of America and Bank of America earlier this week to discuss plans for privatisation.
Before his reelection, some of his allies started laying the foundation for possible IPOs.
Some supporters argue that the sale of shares will reduce federal debt and provide value for taxpayers.
Bankers, however, have expressed doubts about the possibility of concluding such a complex and large transaction in the same year.
Prior attempts at privatising the companies, such as during Trump’s initial term, did not advance.
Investors have been reassured by the implicit guarantee of government for many years.
Analysts say that altering or removing this backstop may lead to higher rates on mortgages.
Trump said that he wanted the guarantee in some form to continue, but he hasn’t explained how a company would implement it.
Government stake remains dominant
Treasury Department warrants allow it to buy about 80% common shares in each company, as well as senior preferred stock.
Some investors own junior preferred stock or common stocks.
The government would sell a portion of its share, but the size of the transaction and the future ownership structure is still being discussed.
It is still uncertain if the IPOs will proceed according to the accelerated schedule that has been discussed.
If completed, these would be among the biggest share offerings in history, and could reshape the US housing market, as well as alter the role played by the federal government within the mortgage system.
The ICD published the following report: Trump administration weighs IPO of Fannie Mae, Freddie Mac for later in this year.
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