This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fannie and Freddie Show Huge Gains for Week

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) remained red hot on Friday, with both companies' common shares showing very strong returns for the week.

Fannie Mae's common stock was up 8% on Friday to close at $3.30, while Freddie Mac's shares rose over 6% to close at $3.08. Pershing Square, led by Bill Ackman, on Friday disclosed in a filing that it had taken a 9.98% stake in common shares of Fannie and a 9.77% stake in common shares of Freddie.

Fannie Mae and Freddie Mac were taken under government conservatorship at the height of the credit crisis in September 2008. The U.S. Treasury holds $117.1 billion senior preferred Fannie Mae shares and $72.3 billion in senior preferred Freddie Mac shares. Under their modified bailout agreements, the government sponsored enterprises, or GSEs, must pay all earnings to the government in excess of minimal capital cushions of $3 billion apiece.

Following their next dividend payments in December, the government will have received $185.3 billion in dividends from Fannie and Freddie, for a five-year investment of $189.4 billion. But there's no mechanism in place for either GSE to repurchase any government-held preferred shares.

Fairholme Capital and other institutional investors holding common and/or junior shares of Fannie and Freddie have filed multiple lawsuits against the government, saying the modified conservatorship was an illegal seizure of their property.

Fairholme founder Bruce Berkowitz on Wednesday proposed that his mutual fund management firm and a group of private equity investors take over the operating assets of the two government sponsored enterprises, or GSEs.

Under Berkowitz's proposal, the balance sheets of Fannie and Freddie -- including $4.7 trillion in mortgage loans -- would be wound down, while his firm and other institutional investors would provide $17.3 billion to take over the GSEs staffs and other operating assets, forming two new companies to take over the GSEs leading role in the U.S. secondary mortgage market. The proposal also calls for private investors to receive $34.6 billion from Fannie and Freddie in exchange for their preferred shares in the GSEs.

Berkowitz's offer has little chance of passing muster in Washington, but the Pershing Square disclosure shows that private equity investors clearly see a light at the end of the tunnel, with a significant value recovery for non-government shareholders of the GSEs.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FNMA $2.82 0.00%
FMCC $2.68 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs