The common stocks in Fannie Mae (FNM) and Freddie Mac (FRE) will not go away under the government’s plan to take control of the companies  The Federal Housing Finance Agency will act as conservator for the firms.

According to Reuters, "the U.S. Treasury will immediately take $1 billion equity stakes in each company that could grow to be as large as $100 billion each and which would be senior to both existing preferred and common shares."

The dividends that Fannie and Freddie pay on common and preferred stock will go the way of the Dodo.

Fannie Mae had a market cap of $7.5 billion before the government’s action and traded at $7. Freddie Mac’s market value was $3.3 billion with a share price of $5.

Now the two huge agenies will end up as penny stocks. They will likely be delisted from The New York Stock Exchange and will end up trading on the Over the Counter Bulletin Board.

Instead of firms owned by huge institutional shareholders, they will become part of the speculative world of day traders. As penny stocks they could easily trade hundreds of millions of share a day. An eighteen-year-old with a PC and an account at E*Trade will be able to pick up 10,000 shares in either company using his weekly allowance.

If they want to gamble some money, tax-payers might get something in exchange for bailing the mortgage operations out.

Look for the new symbols: FNM.OB and FRE.OB.

Douglas A. McIntyre

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