Is There Any Hope For Fannie Mae And Freddie Mac Investors?
After the catastrophic court ruling for investors in Fannie Mae and Freddie Mac, Bidness Etc explains why there is still hope
Published: October 2, 2014 at 8:00 am EST
By: Troy Kuhn
Giants of the mortgage finance domain, Fannie Mae (FNMA) and Freddie Mac (FMCC) saw their stocks nosedive yesterday in the wake of the District court ruling that dismissed investors’ claims of unfair treatment.
Four lawsuits filed against the federal government were thrown out by Judge Royce Lamberth on Tuesday, citing the Housing and Economic Recovery Act. The dismissed lawsuits included those filed by investors Fairholme Funds Inc. and Perry Capital LLC last year.
In 2013, both Fannie Mae and Freddie Mac climbed over 1000% on speculation that investors will be given a fair share in profits. The District court ruling, however, disappointed investors, who are left with $33 billion worth (face value) of preferred shares, which are possibly valueless now.
Common stocks of the two companies were down over 60% in yesterday’s pre-market trading. Fannie Mae closed at $1.70, slipping 36.8% for the day while Freddie Mac fell 37.5% to close at $1.65. The former’s preferred shares – series “S” – plunged 55% yesterday to $4.15. Similarly, Freddie Mac’s “Z” series preferred shares tanked 58% in the regular trading hours and a further 25% in the afterhours, settling at $3.25.
The court verdict has resulted in a massive financial setback for investors in the two government-sponsored enterprises. Many investors might have sold their holdings while some might be looking to. But others hold a different point of view.
As Fannie Mae and Freddie Mac came tumbling down, many investors, including hedge-fund Maglan Capital, decided to hold on. When the stocks were down 60%, the fund’s President David Tawli said, "At 50 cents a share, I'm not going to throw in the towel."
Others who have decided to hold are banking their hopes on the fifteen lawsuits that remain. Richard Epstein, from NYU School of Law, believes Judge Lamberth has made a “massive injustice”.
Professor Epstein, reviving hope for investors, wrote, “Fortunately, Judge Lamberth does not represent the only game in town. Concurrently, litigation is also taking place in the Court of Federal Claims before Judge Margaret Sweeney, who has prudently refused to grant the government a summary judgment and has ordered discovery to take place on all the issues that are relevant to any proper resolution of this dispute.”
He believes the recent ruling was just “one battle in a long war.” Judge Margaret Sweeney is presiding over some litigations as well, and from what Mr. Epstein says, she is determined to get to the bottom of the situation. She has requested data like Fannie and Freddie’s profitability at the time of the dividend sweep.
Her investigation into the matter makes Judge Lamberth’s instant ruling look like a big injustice. This must surely be some sigh of relief for Fannie Mae and Freddie Mac investors. Bill Ackman’s hedge-fund, Pershing Square Capital Management, is also awaiting its trial. http://www.bidnessetc.com/26641-is-there-any-hope-for-fannie-mae-and-freddie-mac-investors/