The conservator of Freddie Mac and Fannie Mae has ordered the two government sponsored enterprises (GSEs) to take steps to delist their respective common and preferred stocks from the New York Stock Exchange. The stocks will also be delisted from any other national securities exchange and but will continue to be traded over the counter.
The Federal Housing Finance Agency (FHFA) said that its 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." Acting Director Edward J. DeMarco that that the determination is related to stock exchange requirements for maintaining price levels and curing deficiencies.
New York Stock Exchange (NYSE) rules state that if a stock price drops below $1 per share and remains there for 30 trading days the company must either drop its name from the Exchange or take remedial action to increase the value of the stock. Since the stock market crash two years ago, NYSE has been more lenient in that requirement and stocks sometimes continue to trade below $1 for more than 30 days. Companies threatened by delisting frequently employ a reverse split to drive the price of the stock upward, but FHFA said that the alternatives available for putting a cure in place for the two GSEs do not assure maintaining the minimal price level or avoid a loss of shareholder value.
The two stocks had long been a staple for conservative investors, trading as high as the mid-$50s in the case of Fannie and mid-$40's for Freddie. Freddie Mac has 649.11 million shares outstanding, Fannie Mae 1.12 billion.
The GSE's began to lose market value in July of 2008 as the extent of the housing and mortgage crises began to become apparent. Freddie's stock value dropped from $43.97 on July 7 to $18.00 on July 15. The stock closed on Friday, September 5 at 19.50 and on Sunday the federal government put both GSEs into conservatorship. On Monday morning Freddie's stock opened at $6. Fannie Mae stock followed a similar downward spiral. Both stocks have traded in a narrow range, seldom rising above $2 per share and frequently trading below $1. While Freddie Mac closed yesterday at $1.50, Fannie Mae, with its much larger pool of ownership, has not risen above the $1 mark since May 17. Freddie Mac is trading today at .78, Fannie Mae at .65.
The stocks will be quoted on the Over-the-Counter Bulletin Board and FHFA said that the Enterprises would remain Securities and Exchange Commission registrants and subject to applicable federal securities laws.
DeMarco said, "A voluntary delisting at this time simply makes sense and fits with the goal of a conservatorship to preserve and conserve assets."
