Fannie Mae (FNM) CEO Daniel Mudd went on CNBC this afternoon to assure shareholders that FNM isn't going to zero. He wasn't particularly persuasive. By frequently suggesting that things are now starting to get better--on a day in which FNM stock dropped 28% to $7--he also didn't do wonders for his credibility.
Key points:
- Mudd did not run to Chris Cox at the SEC and ask for the SEC to enact the emergency short-selling rule it announced this afternoon.
- Fannie's stock is getting hit because "it's a choppy market." But Mudd thinks the SEC's action is "starting to put a floor underneath the market." It must be way underneath.
- The loans Fannie is buying now are solid. Unfortunately, the company is still saddled with trillions of dollars of loans that aren't.
- Fannie is in a quiet period, so Mudd can't say anything about why the market is wrong to think that the company needs to raise billions in additional capital.
The interview, courtesy CNBC:
Melissa Lee: WE ARE JOINED FROM FANNIE MAE HEADQUARTERS WITH CEO, DANIEL MUDD.
Daniel Mudd: IT'S GOOD TO BE HERE, THANKS.
Lee: AND WE WANT TO TALK ABOUT THE EMERGENCY ORDER, EMERGENCY MEASURE IN ORDER TO LIMIT NAKED SHORT SELLING ACTIVITY IN YOUR STOCK. IS THAT WHAT IS TAKING YOUR STOCK DOWN AT THIS POINT?
Mudd: NO. I THINK THAT WE ARE THE LARGEST PARTICIPANT IN THE HOME MORTGAGE MARKET, AND THE MARKET IS GOING THROUGH A TOUGH PATCH HERE. I THINK THAT'S FUNDAMENTAL. AND CHAIRMAN COX'S MEASURE WILL BE POSITIVE FOR THE MARKET.
Lee: IS THAT SOMETHING THAT YOU ASKED FOR?
Mudd: NO.
Lee; IT IS NOT? DO YOU HAVE ANY EVIDENCE THAT IT IS NAKED SHORTS THAT ARE PUTTING DOWNWARD PRESSURE ON YOUR STOCK?
Mudd: I THINK IT'S HARD TO READ THROUGH. IT'S A CHOPPY MARKET WITH A LOT OF FOLKS ON VARIOUS SIDES, LOOKING FOR CLIR TEA AND LOOKING FOR DIRECTION. I THINK THOSE PIECES ARE STARTING TO EMERGE NOW. AND WE ARE LOOKING FOR POSITIVE STATEMENTS. AND WE APPRECIATE CHAIRMAN COX, AND DIRECTOR LOCKHART. I THINK THAT'S STARTING TO PUT A FLOOR UNDERNEATH THE MARKET.
WE WILL LOOK BACK AND SEE THIS AS A PERIOD WHERE WE BROKE THE BACK OF A LOT OF THE THINGS THAT HAVE BEEN GOING ON. BUT THERE IS A LOT OF WORK TO DO.A LOT OF VULNERABILITY AND WE NEED TO REMAIN VIGILANT ON IT.
Lee: DO YOU THINK THEY NEED TO TAP THE CREDIT LINE EXTENDED BY TREASURY?
Mudd: NO, IT'S AN IMPORTANT BACKSTOP AND IMPORTANT TO NOTE THAT'S SOMETHING THAT WILL BE PUT IN PLACE BY MUTUAL AGREEMENT, AND BE CONSIDERED IN THE BEST INTEREST OF THE COMPANIES AND THE MARKET AND SHARE HOLDERS AND STAKE HOLDERS. I THINK IT'S A POSITIVE THING. WE DON'T NEED IT NOW, AND I THINK THAT IT'S GOING TO BE ANOTHER ONE OF THOSE PIECES THAT COMES IN PLACE TO PUT THE FOUNDATIONS BACK UNDERNEATH THE MARKET. AND HOPEFULLY START TO GET US BACK TO WHERE WE WANT TO BE OVERALL.
Lee: IN TERMS OF THE TREASURY OFFERING TO BUY EQUITY IN THE STOCK, SHOULD BE NEEDED IN THE FUTURE? DO YOU SEE A SCENARIO IN WHICH THAT WOULD HAPPEN IN THE NEAR FUTURE?
Mudd: I THINK IT'S IMPORTANT TO HAVE THOSE CAPABILITIES THERE. IT'S A JITTERY MARKET. AND THE DIRECTIONS HAVE TRENDED DOWN OVER THE COURSE OF THE PAST YEAR OR SO NEAR THE -- SINCE THE SUBPRIME CRISIS STARTED OFF. BUT I THINK THAT WE ARE NOW STARTING TO SEE A LITTLE BIT OF LIGHT. I THINK ALL OF THESE MEASURES ARE STARTING TO HAVE A BIT OF AN ARRESTING EFFECT. I THINK THAT WE STILL HAVE A LONG WAY TO GO. ONE MORE STEP, IMPORTANT, AND I THINK IT REFLECTS THE IMPORTANCE IN THE CENTRAL OF THESE COMPANIES TO THE HOUSING MARKET AND THE CORRECTION UNDER WAY.
CNBC’s Steve Liesman: MR. MUDD, YOUR STOCK HAS BEEN POUNDED. I AM SURE YOU ARE AWARE. UNDER $7. I WONDER, SINCE WE HAVE HAD LOTS OF PEOPLE ON TALKING ABOUT WHAT IS WRONG WITH YOUR STOCK, MAYBE JUST TAKE THE OPPORTUNITY TO EXPLAIN WHY SOMEBODY SHOULD STEP IN AT THIS POINT IN TIME AND TAKE A POSITION, ESPECIALLY ON THE EQUITY SIDE OF FANNIE MAE, GIVING DISCUSSIONS ABOUT THE NEED FOR CAPITAL AND THE POTENTIAL FOR DELESION OF THE EQUITY THAT I MIGHT BUY IF I BOUGHT YOUR SHARES TODAY?
Mudd: A LOT OF THE FUNDAMENTALS THAT WE HAVE BEEN TALKING ABOUT RERESPECT TO FANNIE MAE REMAIN TRUE. THIS IS A SOLID MARKET. AMERICANS WANT TO OWN A HOME. THE MARKET IS RETURNING TO A SAFE CENTER . WE HAVE A TOUGH TIME WE HAVE BEEN THROUGH. AND THOSE FUNDAMENTALS ARE THERE AS WE WORK THROUGH THAT. THE BUSINESS THAT WE ARE PUTTING ON NOW IS VERY ATTRACTIVE. THE BOOK OF BUSINESS THAT WE ARE PULLING ALONG BEHIND US, THAT'S EXPERIENCING THE SAME STRESS AS THE OVERALL HOUSING MARKET. AND THE FUNDAMENTALS OF THE COMPANY BEGIN TO EMERGE. THE IMPORTANCE OF OUR ROLE AT THE CROSSROADS OF THE MORTGAGE MARKET, AND THE FACT THAT WE ARE BEING ASKED TO DO A LOT MORE TO RETURN TO THAT SENSIBLE CENTER IS VERY IMPORTANT, AND I THINK THAT AS THOSE FUNDAMENTALS EMERGE, THE VALUE WILL EMERGE IN THE STOCK AS WELL.
Liesman: WHAT ABOUT THE ISSUE OUT THERE AND POUNDED BY THE BEARS RELATIVE TO YOUR STOCK, THAT THERE ARE MORE LOSSES TO COME AND THE LOSSES IN YOUR PORTFOLIO AND THE ISSUE OF WHETHER OR NOT CAPITAL AT THIS POINT RIGHT NOW IS ADEQUATE?
Mudd: YEAH, WELL, YOU KNOW, WE HAVE A VERY DETAILED AND STRINGENT CAPITAL REGULATION. WE HAVE A REGULATOR WITH EXAMINERS ON SITE. AND LAST WEEK THE REGULATOR INDICATED THAT THEY CONTINUE TO ASSIGN US A --
Liesman: I UNDERSTAND THAT. I AM SORRY TO INTERRUPT. THE REGULATOR MAY BE SAYING ONE THING, BUT THE MARKET IS SAYING ANOTHER. WHAT CAN YOU SAY ABOVE AND BEYOND THE REGULATOR'S ASSURANCE TO THE MARKET THAT A CAPITAL IS ADEQUATE NOO
Mudd: WELL, YOU DID POINT OUT IN THE BEGINNING THERE WE’RE IN A QUIET PERIOD. I THINK THAT AT THIS POINT, YOU KNOW, THE REGULATORS' ASSESSMENT BASED ON THE A LOT OF EXAMINATION AND WORK, RIGHT NOW WE HAVE A LOT OF CAPITAL, AND WE ARE ABLE TO RAISE CAPITAL, AND NOT ONLY IN NOVEMBER, BUT, AGAIN, IN MAY, AND WE RAISED $7.5 BILLION THAT CAPITAL. WE ARE ABOVE THE REGULAR LAW
TORI REQUIREMENTS, GOING INTO THE BELLY OF THIS MARKET. AND I HAVE SAID BEFORE, WITH YOU FOLKS AND THS, YOU KNOW, WE DON'T KNOW EXACTLY WHERE THE BOTTOM IS. WE DON'T KNOW EXACTLY WHAT THE DURATION IS. BUT IT'S IMPORTANT, AS WE GO INTO THAT TYPE OF MARKET, TO MAKE SURE THAT WE ARE LONG IN CAPITAL. THAT'S THE WORK THAT WE HAVE BEEN DOING.
Liesman: AND THE ISSUE HERE ABOUT MARK TO MARKET. THERE IS A LOT OF PEOPLE TALKING ABOUT THE ISSUE THAT BASICALLY THE SPREAD BETWEEN YOUR HEDGE COST OF FUNDS -- I AM SORRY, THE RETURN ON YOUR PORTFOLIO AND YOUR COST OF FUNDS BEING RATHER HIGH RIGHT NOW. I GUESS MY QUESTION IS WHETHER OR NOT THE MARK TO MARKET ON THE PORTFOLIO IS AN ACCURATE DEPICTION OF EARNINGS?
Mudd: WELL, BECAUSE OF THE QUIET PERIOD, WE ARE RELEASING THE EARNINGS TO THE PUBLIC. THAT WOULD BE THE APPROPRIATE TIME TO TALK ABOUT THAT. SO LET ME HOLD OFF ON THAT QUESTION FOR RIGHT NOW.
Lee: AND MR. MUDD YOU HAVE GIVEN ALL INDICATIONS TO THE MARKET YOU HAVE THINGS UNDER CONTROL, ADEQUATE LIQUIDITY, AND YOU CAN'T OFFER ANYTHING ELSE UP TO INVESTORS, OR CAN YOU? IS THERE ANYTHING THAT YOU CAN SAY TO PUT EQUITY INVESTORS AT EASE AND OR IS IT MAY KID SHORT SELLING THAT IS PUTTING PRESSURE ON YOUR STOCK?
Mudd: I DON'T THINK THAT YOU CAN YOU SIGN IT TO A SINGLE CAUSE. THIS IS A SOLID COMPANY. WE HAVE CHALLENGES IN THE HOMEOWNERSHIP MARKET TO WORK THROUGH. IF YOU THINK ABOUT THE OVERALL STRUCTURE OF THE MARKET, WE ARE AT THE CENTER. IF YOU WANT TO SECURE TIES A LOAN, THAT'S WHAT WE DO. THE SPREADS ARE THERE. YOU WANT TO INVEST, THAT'S WHAT WE DO. AND THE STANDARDS THAT WE ARE SEEING ARE THE STANDARDS IN THE LOAN THAT WE SPECIALIZED. AND THAT'S WHERE THE MARKET IS COMING, AND THAT'S WHERE WE ARE.
Lee: MR. MUDD, THANK YOU FOR JOINING US TODAY. THANK YOU FOR TIME. DANIEL MUDD, CEO ON FANNIE MAE.
See Also:
Freddie Mac (FRE) Liquidity Fine, Shareholders Screwed (FRE, FNM)
