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Ackman Suffers $300 Million in Paper Losses as Fannie, Freddie Tumble
5:41 pm Mar 11, 2014

Already battling against Herbalife Ltd.HLF -1.16%, hedge-fund manager William Ackman found himself with another problem on Tuesday: a sharp decline in the price of Fannie MaeFNMA -30.76% and Freddie MacFMCC -26.81% common shares that incurred one-day paper loses of hundreds of millions of dollars.

The over-the-counter stock prices of the two mortgage-finance giants tumbled Tuesday after the top Democrat and Republican on the Senate Banking Committee agreed on the broad outlines of a bill to replace Fannie and Freddie. Fannie Mae common shares closed at $4.03 Tuesday, down 31%, and Freddie Mac shares closed at $4.04, down 27%.

Mr. Ackman’s Pershing Square Capital Management LP owns nearly 10% of the firms’ common shares, a bet in part that Fannie and Freddie would escape liquidation and be revamped, despite various legislative proposals in Congress that would create new mortgage guarantors.

Pershing Square in November filings said it had spent about $400 million on its investments.

Tuesday’s stock price movements amounted to a roughly $300 million paper loss for Mr. Ackman from Monday; $207 million from Fannie and $94 million from Freddie. But Pershing Square is still up on its bet, having spent about $2.29 per Fannie share and $2.14 per Freddie share.

While other prominent investors–including Bruce Berkowitz of Fairholme Capital Management LLC and Richard Perry of Perry Capital LLC–are bullish on Fannie and Freddie, they largely or exclusively hold preferred shares.

Of multiple classes of preferred shares, a commonly traded Fannie preferred (ticker symbol FNMAS) fell 3% Tuesday while a similar Freddie-related preferred (ticker symbol FMCKJ) fell about 4%.

Mr. Ackman’s bet is seen by some as riskier because the U.S. government has warrants that it hasn’t yet exercised to acquire nearly 80% of common shares, a move that would dilute current investors.

Mr. Ackman declined to comment Tuesday.

The bill out of the Senate Banking Committee will call for replacing Fannie and Freddie with a new system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered, the Journal reported.

http://blogs.wsj.com/moneybeat/2014/03/11/bill-ackman-suffers-300-million-in-paper-losses-as-fannie-freddie-tumble/

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