Keefe sees Freddie, Fannie shares rallying on Craig Phillips hire

Keefe Bruyette thinks Freddie Mac’s (FMCC) announcement that Craig Phillips will join the company as executive vice president, corporate strategy and external affairs will be seen as an indication that the company is preparing for an effort by the Trump administration to privatize the government-sponsored enterprises. During Trump’s first team, Phillips worked as Counselor to the Treasury Secretary and was leading the GSE privatization effort, the analyst tells investors in a research note. Keefe expects the shares of Freddie Mac and Fannie Mae (FNMA) to respond positively to the news. However, the firm continues to think there could be “meaningful downside” to the common shares if privatization occurs. The government’s senior preferred shares are likely to be converted to common shares resulting in meaningful dilution to the common shares, contends Keefe. The firm has a Market Perform rating on both Freddie and Fannie.