Fannie, Freddie shares dive after U.S. appeals court ruling

Tue Feb 21, 2017 5:31pm EST
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By Nathan Layne and Svea Herbst-Bayliss

(Reuters) - Shares of Fannie Mae and Freddie Mac tumbled more than 30 percent on Tuesday after a U.S. appeals court shut down efforts by hedge funds and other investors to pursue numerous legal claims accusing the U.S. government of seizing their profits following taxpayer bailouts.

By a 2-1 vote, the U.S. Circuit Court of Appeals for the District of Columbia said a lower court had correctly barred claims that the government overstepped its authority in 2012 by eliminating dividend payouts to various shareholders and requiring the companies to pay the U.S. Treasury an amount equal to their quarterly net worth.

"For me, it looks like the end of the road," Ellis Phifer, senior market strategist at Raymond James in Memphis, Tennessee, said of the hedge funds' claim.

The court said Fannie Mae and Freddie Mac investors could still pursue some damages claims, including for breach of contract.

The plaintiffs could also appeal the ruling, possibly sending the case to the U.S. Supreme Court.

Still, stock traders viewed the decision as a setback. Hedge fund Perry Capital was among those that sought to challenge the lower court's dismissal of lawsuits, arguing the government's confiscation of profits was illegal.

In afternoon trading on above-average volume, Fannie Mae shares were down 33 percent at $2.78, while Freddie Mac fell 36 percent to $2.54. Both stocks are still up by about two-thirds since Donald Trump won the U.S. presidential election on Nov. 8. Investors said part of that rally stemmed from comments that month by then-Treasury Secretary-nominee Steve Mnuchin that both companies should be privatized.

Mnuchin, however, said in January he was against such a plan.   Continued...

A stands outside Fannie Mae headquarters in Washington February 21, 2014. 
REUTERS/Kevin Lamarque