Bill Ackman’s 3Q17 Letter: ADP, Chipotle, Fannie and Freddie, Herbalife Short, Mondelez
Posted on November 23, 2017 by InvestorAlmanac in Smart Money
Fannie Mae (FNMA) / Freddie Mac (FMCC)
Have been a number of favorable developments in the political and regulatory landscape regarding the GSEs and housing finance reform
RNC resolution made public on 9/13/17 that seeks to protect taxpayers by restoring safety and soundness to the GSEs, calls for Fannie and Freddie to be “permitted to rebuild equity capital,” and recognizes that Treasury can generate an estimated $100bn in additional cash profits by monetizing its warrants for 79.9% of each company’s common stock
A 9/13/17 letter from 6 Democratic Senators to the Treasury Secretary and FHFA Director requesting that the GSEs be permitted to build capital to prevent a future draw on Treasury’s line of credit
Testimony from FHFA Director to the House Financial Services Committee on 10/3/17 in which Director Watt outlined the extensive reforms that have taken place at the GSEs during their 9+ year conservatorship, stated that required minimum capital levels for Fannie and Freddie should be in the range of 2-3% and hinted at some form of initial capital retention in the coming months
Comments from Steve Mnuchin in mid-October that housing finance reform would be the next priority after tax reform, and that Fannie and Freddie would not be in conservatorship by the end of his initial 4-year term
Senator Corker, who has been one of the leading voices in Congress on housing finance reform for the last several years, will not seek re-election in 2018 and we believe that he would like to see this issue resolved before his retirement
He suggested that he will soon put forth new bipartisan legislation regarding housing finance reform, for which they should have the support of Secretary Mnuchin after the tax reform initiative concludes
In the meantime, intrinsic earnings power of both entities continues to increase, driven by growth and improved credit quality in their core single-family guarantee businesses
Current share prices do not reflect the significant momentum that continues to build for a bipartisan resolution of their status that would be highly profitable for the government and other shareholders, protect the taxpayer against future bailouts, and ensure that the dream of home ownership remains widely achievable for generations to come
