Fannie and Freddie Rally After Nomura Sees ‘Recap and Release’

Common shares of Fannie Mae and Freddie Mac rallied to the highest since October after Nomura Instinet initiated coverage of the stocks with buy ratings.

Analyst Matthew Howlett wrote that he expects a “recap and release” of the government-controlled mortgage giants in the next 12 to 18 months. “Recap and release” refers to the process of bolstering the companies’ ability to absorb losses and then returning them to private ownership.

“Full privatization is not a trivial exercise, by any stretch, but we believe it is achievable, given the determination of the parties involved and the value proposition presented to the...