Wall Street eagerly awaits the Trump administration’s plan for GSE reform, anticipating potential public offerings for Fannie and Freddie as part of the FHFA’s effort to recapitalize. The nation’s largest bank, J.P. Morgan Chase & Co., recently hosted a large investor meeting to discuss the Trump administration’s reform efforts. The meeting included representatives from Moelis & Co. and Kirkland & Ellis LLP; both firms advocated for the privatization of the mortgage giants, citing opportunities for investment.

Over the last couple of years, Fannie and Freddie have rebuilt their balance sheets, returning to profitability for the first time since their adoption into federal conservatorship. The Trump administration, confident in the GSEs competitive potential, intends to recapitalize and release them as private companies.

A public offering for Fannie and Freddie could constitute an equity sale of $100 billion, ensuring that the mortgage entities could withstand economic downturn without a future government bailout. The Treasury Department is yet to release its reform blueprint, and industry participants maintain skepticism around the mechanics and funding of the deal.

The Wall Street consensus indicates support for the capital raise, though some are concerned about a public offering’s effect on stockholders. While preferred shareholders would likely benefit, common stockholders’ assets could be severely diluted by a major sale, stagnating or declining the value of their holdings.

Wall Street bankers, in their communication with Trump administration officials, described the potential sale as “something of a hybrid between a traditional IPO and a secondary offering of stock.” Both agencies have outstanding shares, though these would represent a small minority of holdings post-conservatorship. Fannie and Freddie, if privatized, could be the largest IPOs in market history.

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