Deutsche Bank Says Buy Fannie Mae, Freddie Mac on IPO Outlook

Deutsche Bank recommends buying Fannie Mae and Freddie Mac shares, citing expectations of their potential release from government control. Both mortgage giants have seen significant year-to-date gains, with Fannie Mae up over 320% and Freddie Mac up 288%, despite being delisted from the NYSE in 2010 and trading over-the-counter with high volatility.

Analysis

Deutsche Bank has issued a 'Buy' recommendation for Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corp. (FMCC) shares, predicated on the expectation that the mortgage giants may be released from government control. This speculative catalyst has driven extraordinary returns, with Fannie Mae's stock surging over 320% and Freddie Mac's up 288% year-to-date. Investors should note that these gains have occurred while the securities trade over-the-counter, a market known for its volatility, following their delisting from the New York Stock Exchange in 2010. The core investment thesis is therefore a high-risk regulatory event play, balancing the significant appreciation already realized against the potential for further gains should the government-sponsored enterprises be recapitalized and returned to private ownership.

Key Decisions for Investors

• Investors with a high risk appetite could consider a speculative position in FNMA and FMCC, aligning with Deutsche Bank's bullish outlook on a potential release from government conservatorship.
• Given the extreme price volatility and the fact that shares trade over-the-counter, any investment should be carefully sized to manage the significant risks of a binary, event-driven outcome.
• The primary catalyst is regulatory change, so investors must closely monitor all news and policy announcements from Washington regarding the future status of these government-sponsored enterprises.