President Trump will release Fannie Mae and Freddie Mac by end of 2028
Recent announcement from the Trump administration is huge news for shareholders
Fannie Mae and Freddie Mac (trading symbols $FNMA and $FMCC) are two of the most interesting investment ideas I have ever come across. They are two of the largest financial institutions in the world. They are so large, their scale is hard to believe. When measured by Total Assets, Fannie Mae is the largest company in the US. Freddie Mac is #3 (only JP Morgan, the nation’s largest bank deprives it of the #2 spot). If their Mortgage Backed Securities were a bond market, it would be the 4th largest in the world - only eclipsed by the US, Chinese and Japanese governments.
Yet these companies have been in under government conservatorship for 17 years (a consequence of the Great Financial Crisis in 2007-2009). As a result, they trade Over-The-Counter, lost among the wilderness of penny stocks. President Trump came to office in 2016 with the aim of ending their government conservatorship and restoring them to private market glory. But he ran short of time as the companies had virtually no capital on their books, and needed years to build this up. Their penny stock status remained. In 2020, the Biden administration had no interest in dealing with the future of these firms. The upshot: Fannie Mae and Freddie Mac continued to build capital…lots of it…and almost nobody was paying attention. I wrote my first buy-side research article on these firms back in January. These were deep dive reports covering the detailed histories, financials and valuations of the companies. I asserted that as they continued to build capital, the probability of exiting conservatorship increased and so to did the anticipated share values.
Trump returned to office with these companies in a much stronger position than in his first term. Then, last week, President Trump posted that he was seriously thinking of ending the conservatorships. This single message sent the shares up >50% in one day !
With this single post, President Trump has massively increased the odds that the conservatorships will end before he leaves office in 2028.
So I think this is a great time to revisit my previous deep dive on Fannie Mae ($FNMA) and Freddie Mac ($FMCC), including my valuation models and price targets. I will do this in two parts. The first part (this post) will cover why I think both companies can accumulate enough capital via retained earnings alone to exit conservatorship. This is a critical achievement, as it means additional shareholder dilution (in excess of the outstanding government warrants) is less likely. In Part 2, I will review my valuation model and price targets and comment on the price target from Pershing Square (Bill Ackman’s hedge fund). The details are behind a paywall (paid subscribers can continue reading). Suffice to say, the shares are up ~600% in the last 12 months and I think they still have massive upside potential. Free subscribers should consider upgrading to paid for this one - the potential upside on these stocks is huge. It might be the single best investing decision you’ll make.
