Fannie Mae’s Filings & A Climate For Guidance Coma (FNM, FRE, BCS, WB, C, AIG, MER)

Fannie Mae (NYSE:FNM) is seeing shares trade much lower after net income fell by more than half in the first nine months now that SEC filings for Q1, Q2 and Q3 have been caught up to date.  The good news is that this catches Fannie Mae back up to date in its SEC filings, but the bad news is the same as news reports in Zombie outbreak movies: "bad."

The mortgage lender and guarantor posted earnings and the results were $1.17 EPS (down from $3.16 for the first 3 quarters in 2006) on net income of $1.5 Billion.  These results "reflect a worsening housing market" and "credit market volatility," like you didn’t see that coming.  Shares are down over 8% at under $46.00 to a new yearly low under the prior $47.78 low right after the open.

Fannie’s red-headed step brother Freddie mac (NYSE:FRE) is seeing a 9% drop to under $40.00 in sympathy, and that is far under the $43.01 to $71.50 prior range.

Barclays (NYSE:BCS) is down about 7% on talk of $10 Billion in CDO writedowns, even though the company denied anything this wide.  Everyone on the street knows the banking giant was a huge buyer of CDO’s, so the question is not IF they have write downs but HOW MUCH the writedowns will be.

Wachovia’s (NYSE:WB) admissions of more than $1 Billion in writedowns has shares down over 3% at $38.81, right at the bottom of the $38.47 to $58.80 range over the last year.

Citigroup (NYSE:C) has fallen and is now under $32,00 since Chuck Prince left because the company has no formal or acceptable succession plans other than Rubin as interim Chairman.  The huge writedowns might not be over there yet either.

American International Group (NYSE:AIG) is down again by 1% at $55.33 after hitting a year low of $53.99 yesterday.  Despite Hank Greenberg turning on the activist investor hat, they had writedowns with earnings too.

If you have an AOL Instant Messenger or a Yahoo! Instant Messenger with any contacts from Wall Street on your buddy lists then you’ve undoubtedly received gloom and doom emails regarding probably every single bulge bracket firm.  The best one being past around yesterday was "Merrill Lynch may be the next Enron" if you can believe it.  Merrill Lynch (NYSE:MER) is at risk of having a major broker defection, but these brokers better know that wherever they go they better be demanding upfront cash guarantees because CDO writedowns are hiding on the books of probably every single major financial institution out there.  Traders passing around instant messages calling it the next Enron may not be fair even if shares are down another 4% today, but what is obvious as a black eye is that Merrill Lynch (and every other bulge bracket firm on Wall Street) have no clear picture of what the situation will look like one or two quarters out.

Any guidance and any estimates from major financial institutions is obviously at risk.  About the only good news for New York City retailers this Christmas is that the Europeans are able to spend like drunken sailors now that the dollar has become the U.S. Peso.

It’s going to be quite some time before any guidance from financial institutions will either be offered or that will be taken seriously.  Unfortunately it’s also a case where everyone is throwing the baby out with the bath water.

Jon C. Ogg
November 9, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.