Stock Alert for Fannie Mae ($FNM)
Fannie Mae (NYSE: $FNM)
Federal National Mortgage Assoc. (Fannie Mae) (FNM) is a government-sponsored enterprise (GSE) chartered by the U.S. Congress to support liquidity and stability in the secondary mortgage market, where mortgage related assets are purchased and sold. The Company’s activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage-related securities in the secondary market for its mortgage portfolio. It also acquires funds to purchase mortgage-related assets for its mortgage portfolio by issuing a variety of debt securities in the domestic and international capital markets. It also makes other investments that increase the supply of affordable housing. The Company is organized in three business segments: Single-Family Credit Guaranty, Housing and Community Development (HCD) and Capital Markets. Together, these businesses contribute to the Company’s chartered mission to increase the amount of funds available in order to make homeownership and rental housing more available and affordable.
FNM’s customers include mortgage banking companies, savings and loan associations, savings banks, commercial banks, credit unions, community banks, insurance companies, and state and local housing finance agencies. The Company was founded in 1938 and is based in Washington, the District of Columbia.
| Share Statistics (11-May-10) | FY
2008 |
FY
2009 |
%
Chg |
Q4 2008 | Q4 2009 | %
Chg |
||
| Symbol | FNM | Revenue, $Mn | 43,123 | 39,355 | -8.7% | 10,954 | 9.264 | -15.4% |
| Current price | $1.06 | Gross marg. | 20.4% | 36.9% | 80.9% | 24.5% | 39.9% | 62.9% |
| 52wk Range: | 0.51-2.13 | Oper. margin | – | -185.5% | – | – | -166.4% | – |
| Avg Vol (3m): | 27,527,400 | Net margin | -136.1% | -182.9% | 34.4% | -230.3% | -163.8% | -20.9% |
| Market Cap. | 1.18B | |||||||
| Shares Outstanding | 1.12B | EPS, $ | -21.99 | -11.94 | -45.7% | -3.86 | -2.58 | -33.2% |
Source: Reuters.com, SEC Filings.
Financial Summary
FNM reported a net loss of $11.5 billion in the first quarter of 2010, compared with a net loss of $15.2 billion in the fourth quarter of 2009. Including $1.5 billion of dividends on its senior preferred stock held by the U.S. Dept. of Treasury, the net loss attributable to common stockholders was $13.1 billion, or ($2.29) per diluted share, compared with a loss of $16.3 billion, or ($2.87) per diluted share, in the fourth quarter of 2009. The Company’s first-quarter results were driven primarily by credit-related expenses, which remain at elevated levels due to weaknesses in the economy and the housing market.
Net revenue was $3.0 billion in the first quarter of 2010, down 48% from $5.8 billion in the fourth quarter of 2009, due primarily to the adoption of the new accounting standards.
• Net interest income was $2.8 billion, down 25% from $3.7 billion in the fourth quarter of 2009. The assets and liabilities of the Company’s newly consolidated trusts increased both its interest income and its interest expense, but net interest income decreased because the Company does not recognize interest income on the mortgage loans of consolidated trusts that have been placed on nonaccrual status. In the first quarter of 2010, interest income that the Company did not recognize for nonaccrual mortgage loans was $2.7 billion.
• Guaranty fee income was $54 million, down substantially from $1.9 billion in the fourth quarter of 2009. Under the new accounting standards, the Company now recognizes both contractual guaranty fees and the amortization of deferred cash fees received after December 31, 2009, through interest income, thereby reducing guaranty fee income to only those amounts related to unconsolidated trusts and other credit enhancement arrangements, such as its long-term standby commitments.
Source: www.fanniemae.com
| Financial Strength (11-May-2010) | Company | Industry | Sector | S&P 500 |
| Quick Ratio (MRQ) | – | 2.28 | 4.55 | 0.77 |
| Current Ratio (MRQ) | – | 2.33 | 8.39 | 0.91 |
| LT Debt to Equity (MRQ) | – | 396.66 | 106.97 | 130.01 |
| Total Debt to Equity (MRQ) | – | 657.22 | 289.36 | 196.59 |
| Interest Coverage (TTM) | -2.34 | 0.12 | -3.76 | 42.33 |
Source: Reuters.com, SEC Filings.
Analyst Consensus
| Buy | Outperform | Hold | Underperform | Sell | No Opinion |
This is the consensus forecast amongst two polled investment analysts. Against the FNM company.
| Analyst Detail | Buy | Outperform | Hold | Underperform | Sell | No Opinion |
| Latest | 0 | 0 | 0 | 2 | 0 | 0 |
| 4 weeks ago | 0 | 0 | 0 | 2 | 0 | 0 |
| 2 months ago | 0 | 0 | 0 | 2 | 0 | 0 |
| 3 months ago | 0 | 0 | 0 | 2 | 0 | 0 |
| Last year | 0 | 0 | 1 | 0 | 1 | 2 |
Source: www.ft.com
Consensus Estimates Analysis
| # of Estimates | Mean | High | Low | 1 Year Ago | |
| EARNINGS (per share) | |||||
| Year Ending Dec-10 | 1 | -6.90 | -6.90 | -6.90 | -3.29 |
Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=FNM
Investment Highlights
FNM supports liquidity and stability in the secondary mortgage market, serving as a stable source of funds for
purchases of homes and multifamily housing and for refinancing existing mortgages. The Company provides this
financing through the activities of its three complementary businesses: Single-Family Credit Guaranty,
Housing and Community Development (HCD) and Capital Markets.
Single-Family and HCD businesses work with the Company’s lender customers to purchase and securitize mortgage loans they deliver to the Company into Fannie Mae MBS. The Capital Markets group manages the Company’s investment activity in mortgage-related assets, funding investments primarily through proceeds received from the issuance of debt securities in the domestic and international capital markets. The Capital Markets group is increasingly focused on making short-term use of the Company’s balance sheet rather than on long-term buy and hold strategies and, in this role, the group works with lender customers to provide funds to the mortgage market through short-term financing, investing and other activities. These include whole loan conduit activities, early funding activities, dollar roll transactions, and Real Estate Mortgage Investment Conduit (REMIC) and other structured securitization activities.
During the first quarter of 2010, FNM purchased or guaranteed an estimated $191.4 billion in loans, measured by unpaid principal balance, which includes approximately $40 billion in delinquent loans the Company purchased in March 2010 from its MBS trusts. The Company’s purchases and guarantees financed approximately 516,000 conventional single-family loans, excluding delinquent loans purchased from its MBS trusts, and approximately 61,000 multifamily units.
FNM said it remained the largest single issuer of mortgage-related securities in the secondary market during the first quarter of 2010, with an estimated market share of new single-family mortgage-related securities of 40.8%, compared with 38.9% in the fourth quarter of 2009. In the coming months, FNM expects its market share may be adversely impacted by a shift of the market away from refinance activity if interest rates are higher and the Federal Housing Administration (FHA) continues to be the lower-cost option, and in some cases the only option, for loans with higher loan-to-value (LTV) ratios. In the multifamily market, FNM remains a constant source of liquidity and has been successful with its goal of expanding its multifamily MBS business and broadening its multifamily investor base.
Source: FNM’s quarterly report on Form 10-Q for the quarter ended March 31, 2010
Recent Company News
FNM has recently asked for an additional $8.4 billion in government aid after losing $11.5 billion in the first quarter of 2010. The Company’s quarterly losses would have been worse if not for accounting changes as well as unrealized gains on available-for-sale securities that accounted for a $3.3 billion reduction in its deficit. On March 31, 2010, the Treasury provided the Company $15.3 billion to cure its net worth deficit as of December 31, 2009. As a result of this draw, the Company stated that the aggregate liquidation preference of the senior preferred stock increased from $60.9 billion to $76.2 billion as of March 31, 2010, and will increase to $84.6 billion upon the receipt of funds from the Treasury to eliminate its first-quarter 2010 net worth deficit.
“Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement,” the Company said in its release.
Technical Analysis
Source: http://stockcharts.com
FNM is below its 13-day moving average. This bearish sign is even more significant because the moving average is also trending lower.
FNM’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.
The MACD for FNM currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of zero, which implies that the underlying moving averages are trending lower.
Comparative Analysis
| Company Name | Ticker | Price per | Mrkt. Cap. | P/E | P/S | ||
| May-11-2010 | symbol | Share, $ | $ Mn | 2009 | 2010 | 2009 | 2010 |
| Freddie Mac | FRE | 1.37 | 888.28 | n/a | n/a | n/a | 0.11 |
| Median | n/a | n/a | n/a | n/a | |||
| Fannie Mae | FNM | 1.06 | 1,180 | n/a | n/a | n/a | 0.05 |
Source: Thomson Financial
Insider Trading Activity
| NET SHARES PURCHASE ACTIVITY
Inside Purchases – Last 6 Months |
||
| Shares | Transaction | |
| Purchases | n/a | 0 |
| Sales | n/a | 0 |
| Net Shares Purchased (Sold) | n/a | 0 |
| Total Insider Shares Held | 212.19K | n/a |
| % Net Shares Purchased (Sold) | 0.0% | n/a |
| Net Institutional Purchases — Prior Qtr to Latest Qtr | |
| Shares | |
| Net Shares Purchased (Sold) | (129,868,000) |
| % Change in Institutional Shares Held | (452.2%) |
Source: Yahoo Finance
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