Government Bailout For Fannie Freddie

A Wall Street Journal article released after the stock market closed on Friday, is sending financial stocks higher in after hours trading. According to the article which is entitled “Treasury Is Close to Finalizing Plan to Backstop Fannie, Freddie”, while actual details are not yet known, the plan would include a management reshuffle at the GSEs or Government Sponsored Enterprises, and capital infusion. The article also states that an announcement could come this weekend.

Depending on whether the bailout plan is just a cash infusion, shifting of bad balance sheet items that are weighing down Freddie (FRE) and Fannie (FNM) or an actual take over of the companies, shares in both companies could either rally, or tank on Monday.

As it stands right now, stocks in both companies are off about 20% after hours. If the government takes over the companies, the shares might tank as the government will not want to be seen as rewarding rich shareholders and as such, would value the companies below their current market capitalizations.

However, other financials are rallying after hours and the news could help stocks extend today’s modest rally in the Dow Jones Industrials. Stocks on the move in after hours trading including AIG (AIG), Citigroup (C), Merrill Lynch (MER), Morgan Stanley (MS) and the Financial Select Sector Index (XLF).

The Wall Street Journal article can be accessed here

 Tags: Freddie Mac Fannie Mae