Fannie Mae-No Politics (FNMA)

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The activist investor has increased his ownership of the government-sponsored enterprises
Published: October 13, 2014 at 9:17 am EST
By: Troy Kuhn
Billionaire activist investor, Bill Ackman has increased his stake in the mortgage finance companies, Fannie Mae (FNMA) and Freddie Mac (FMCC).
Last year, Mr. Ackman revealed a near-10% stake in the mortgage giants, which is believed to have been extended. The majority ownership of both government-sponsored enterprises (GSEs) resides with the US government.

Mr. Ackman continues to have faith in the GSEs, despite the problems they have lately faced. Following a federal court ruling last month, Fannie and Freddie shares plunged. These issues are mostly down to the dispute between shareholders and the government. On September 29, Perry Capital and Fairholme Capital, major stakeholders in Fannie and Freddie, filed a suit against the government in a US District Court.

The suit alleged that the government had mistreated shareholders after the 2008 bailout. Under a 2012 amendment to the bailout conditions, the Treasury seized most of Fannie Mae and Freddie Mac’s profits. Judge Royce Lamberth dismissed the suit, which drove down the stock prices of the two companies by about 50%.

Under the initial bailout conditions, the government was entitled to receive a 10% dividend on the preferred shares of both GSEs. The 2012 amendment entitled the government to receive nearly all the profit generated by the GSEs. However, no amount would be transferred in the event of a loss.
Mr. Ackman did not lag behind, filing his own suit with the Court of Federal Claims. His case was not dismissed by Judge Lamberth last month, despite being similar to those of Perry Capital and Fairholme Capital.



With this increased investment, Mr. Ackman continues to see great upside potential in the mortgage giants. Earlier this year, he claimed that their prices could go up to the $23-47 range. However, Pershing Square did not disclose the actual heft of its ownership.

Mr. Ackman believes that the 30-year fixed mortgage market Fannie and Freddie cater to is of immense importance to the overall housing market. He asserted that Fannie and Freddie should dispense with their fixed-income arbitrage business, which he claimed suffered the brunt of the 2008 financial crisis. He added that the focus should instead be on guaranteeing middle-class mortgages for credit-worthy borrowers.

Confidence in these GSEs by Bill Ackman and others investors has helped Fannie and Freddie slightly recover its stock price losses. As Fannie and Freddie’s financial troubles continue, these investors could serve as a last-ditch effort for the mortgage giants.

By close of trading on Friday, shares of Fannie and Freddie had regained 7.39% and 10%, respectively.
http://www.bidnessetc.com/27144-bill-ackman-extends-stake-in-fannie-freddie/