So what does delisting mean for the shareholders of government-supported mortgage companies, anyway?
That is a question raised by some readers after an earlier post on the government’s decision to end the trading of Fannie Mae
and Freddie Mac
on the New York Stock Exchange.
The short answer is that if you own these stocks, you don’t need to do anything to continue owning them. The delisting doesn’t change the nature of your stock, only where it is traded. There are no forms to fill out and no boxes to check.
Should you want to sell your shares in Fannie and Freddie, or buy more, the process of doing so will be slightly more involved, and you may end up doing so on slightly less favorable terms.
The NYSE maintains a highly liquid market in Fannie and Freddie shares, as you can see from the action Wednesday. At 1 p.m. EDT, Fannie had traded 240 million shares and Freddie 156 million.
But even on a normal day, Fannie and Freddie change hands early and often on the NYSE. The two stocks’ aggregate average daily trading volume over the last three months is 38 million shares.
They won’t trade in that sort of volume over the counter, which is where Fannie and Freddie trading will now take place. Thinner volume should mean wider spreads, which means you’ll pay a little more to buy and receive a little less when you sell.
Delisting also takes the government a step closer to recognizing the reality that these companies aren’t really shareholder-owned anymore. Because they owe the government $145 billion and counting in capital-support loans, and because they keep losing money, there is little reason to believe their shares are really worth anything.
Together these facts help to explain why the stocks are down 40%.
By allowing the companies to be delisted, perhaps the government is finally clearing up some of the mixed messages some investors may have taken out of the companies’ September 2008 takeover.
The feds have said since then that the companies must support the mortgage market first and look after shareholders second.
But the stocks continued to trade on a national exchange, in great volume because so many investors like the idea of buying cheap stocks in hopes of a quick bounce. Punters may have taken a chance on Fannie at $1 or so, assuming that a company that’s in the news every day and is being supported by the government might well go higher.
After delisting, it will still be possible to play this game of chicken with Fannie and Freddie’s still uncertain future. But once the stocks are off the NYSE, a lot fewer people will probably be tempted to try — which surely is a good thing.