The timing for the announcement was on the same day when the anti-Johnson-Crapo bill video and radio ads were launched in several states hitting at both Democratic and Republican Senators on the Senate Banking Committee along with the dividend checks to the US Treasury to make it official that there are 202.9 billion in dividend payments, a net positive surplus of approximately $13.5 billion over the $189.4 billion invested.
Was this intentional and or coordinated? I do not know. The total return swaps were completed on March 28th and the timing of the announcement March 31 is highly correlated with the significant increase in the pps of the GSE stocks, especially the common that had been consolidating a base in a channel of support and resistance for 8 days.
I do not know exactly why Ackman chose to use a TRS instead of an outright purchase. An outright purchase would have cost him $84 million in cash for a long position, cause him to report such holdings on future SC 13Ds, drained his cash reserves after taking a beating with HLF, tax purposes, etc. I am not privy to any of this as stimulants to his contracting a TRS.
He obviously wants more exposure and this is a way to get by contracting with UBS AG reference assets (FNMA and FMCC) without tying up capital that he has or to allow him to get a return even though he does not have 84 million to lay out.
As for the expiration date he most likely negotiated a one year rate of interest that is far lower than a 30 day, 3 month, or 6 month rates. By doing so he reduces risk, pays less to UBS AG and stands a chance of earning a great deal if FNMA and FMCC increase. I believe he believes that he will earn a profit or he would not have tied Pershing Funds into a one year contract that depends exclusively on the positive performance of the FNMA and FMCC share price for a return. For every penny FNMA and FMCC goes down from $3.53 and $3.50, Ackman will be obligated to pay UBS AG approximately $239,000.
No one can see into the future with certainty, but Ackman has made his bet twice in the common. He is swinging for the fences. A lot of people are in the line up with him. Perhaps more will arrive in the coming days before April 29th who have strong hands and bullish aspirations.
