If the details of the Fannie plan as rumoured are correct (including serious impairment to GSE Preferreds) then I might have been a day early covering my WestAmerica Bancorp.
Ouch. They say on Wall Street that you can't go broke taking a profit - but I think that is wrong. You take plenty of losses and taking small profits is not an antidote to the losses. I missed what could be a big profit. [Monday will tell...]
I had no position in the stock or preferred of the GSEs but was leaning towards buying preferreds on the basis that whilst the GSEs were probably insolvent they were not massively insolvent. [Fortunately I did not ever actually buy any stock.] I covered Fannie quite carefully in Part I, Part 1A, Part II, and Part III. It was enough to realise how little I knew and enough to keep me out of that game.
Having got it wrong on WestAmerica you should probably ignore anything I say on the follow up - which is what does this massive move mean to the rest of the financials.
So far no details on the plan so I have no opinion.
But so far the cost of mortgage funding has remained high because of high spreads on all mortgage lenders. If the new Fannie and Freddie have better access to money at government rates and hence can lend at lower rates then it is good for everyone else's back book but not good for prospective margins... It would benefit those with bad back books (WaMu, Wachovia) and hurt those few who are still firing on all cylinders.
If the new Fannie and Freddie (sometimes called Phoney and Fraudy) do not have such access then there will be hell to pay at the banks with capital shortage.
A few banks are going to take huge losses on their GSE preferred stock if the rumours are correct.
Yours in contrition for error
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