Fannie Mae-No Politics (FNMA)

[TightCoil]

Ackerman Pitches Re-Privatization of GSEs
[e-mail]
Fannie Mae and Freddie Mac could exit conservatorship much faster than generally supposed, Bill Ackerman said Tuesday in a discussion hosted by Keefe, Bruyette & Woods. The billionaire founder of Pershing Square Capital Management claimed that, under the right scenario, Fannie could be fully private again by the end of 2026 and Freddie could follow suit a year later.
Ackerman, of course, is not a disinterested observer. He acknowledged that Pershing currently owns about 210 million shares of the common stock of the two companies, plus a smaller piece of the junior preferreds. Those shares were bought at pennies on the dollar, so the hedge fund could make more than $7 billion if it cashed out in a public offering.
But Ackerman’s vision depends on certain assumptions. The first and biggest is that the Treasury Department forgives its $193 billion senior preferred stake in the companies along with a liquidation preference in excess of $340 billion. In addition, Ackerman’s calculations assume the Federal Housing Finance Agency reduces the government-sponsored enterprises’ capital requirement from more than 4% to 2.5%.
On the plus side, his assumptions about income and pricing are fairly modest. Ackerman stipulates 65 basis points in guarantee fees, roughly what Fannie and Freddie charge today. In addition, he pencils in a 2-bp commitment fee for Treasury’s ongoing backstop through the preferred stock purchase agreements. Finally, his scenario assumes a modest 2% annual growth rate in the enterprises’ books of business.