Keefe sees Fannie, Freddie IPO in 2025 as ‘very unlikely’

Keefe Bruyette keeps Underperform ratings on both Fannie Mae (FNMA) and Freddie Mac (FMCC) after the Wall Street Journal reported on Friday that the Trump administration is planning to do an initial public offering of both later this year. The firm finds “very unlikely” that an IPO can be done by the end of 2025. There are numerous factors to address before an IPO, including the current minimum capital, which is roughly 4.25% of assets for both companies and results in estimated run-rate returns on equity of 7%-9%, the analyst tells investors in a research note. Keefe believes investors won’t be willing to buy shares of companies with such low ROEs. In order for Fannie and Freddie to generate low-teens ROEs, the capital rules have to be changed to remove the buffers and take capital levels back closer to the statutory minimum of 2.5%, contends the firm.