Fannie Mae downgraded to Underperform from Market Perform at Keefe Bruyette

Keefe Bruyette downgraded Fannie Mae (FNMA) to Underperform from Market Perform with a price target of $4, up from $3. The firm sees downside from current share price levels given its “scenario-weighted price target methodology.” While the likelihood of a privatization attempt has grown recently, Keefe sees “considerable risk to common shares at their current levels,” the analyst tells investors in a research note. The firm says it is “very possible” that a privatization attempt fails, driven by a lack of agreement on factors such as the role of the implicit guarantee and appropriate capital levels. It sees the implicit guarantee as the biggest hurdle to government-sponsored enterprise privatization, saying market participants are concerned about the impact on the agency mortgage backed security market.