But institutional and individual shareholders of Fannie Mae and Freddie Mac were neither "vanquished not given an opportunity to recover" and are "trapped in limbo," he wrote. Nader also, separately, wrote a letter to Treasury Secretary Jack Lew calling for a proposal that would address the concerns of the common shareholders. "Regardless of the final outcome of the deliberations on the structure of these GSEs, Fannie and Freddie common shareholders deserve a chance to recover some of the value of their stock," he wrote in his letter. "The common shareholders have been in a financial limbo far too long. It is unfair to punish the common shareholders who have held their Fannie and Freddie stock, in the hopes of recouping some of their losses. Fannie Mae and Freddie Mac should be relisted on the NYSE and their conservatorships should, over time, be terminated." Nader may be fighting a losing battle, with policymakers still undecided on what to do with the bailed out giants.
The junior preferred shares of both companies have seen multi-fold gains as well. Shareholders were wiped out when the government-sponsored enterprises or GSEs were placed in conservatorship in 2008. The Treasury also stopped paying dividends on junior preferred shares. Investors betting on junior preferreds and common shares are hoping the record profitability will soon allow the agencies to repay the government and offer investors a chance to recover some of their investment. But there is no provision in the bailout agreement that allows the agencies to repurchase the senior preferred shares from the government and become private. Political analysts say shareholders betting on junior preferreds and common shares are in "total fantasy" as the government seems to have little inclination to change the status quo. For one, the agencies are now government cash cows, filling the Treasury's coffers and reducing the deficit .
For another, there is no desire on either side of the political aisle to return the GSEs to their former quasi-government selves. Policymakers agree that they need to wind down the agencies, but there is no agreement on how to do so without hurting the already fragile mortgage market. Still hedge funds are piling on to junior preferred shares which has a higher claim on profits than common shares. They do so knowing the political risk is considerable but some believe they will be able to win their case in court, if necessary. Common shares, however, are viewed by most professional investors as excessively risky, given the potential for a roughly five-fold return in preferred shares. Nonetheless, common shares continued their amazing rally on Friday, with Fannie Mae shares rising 33.33% to $2.80 and Freddie shares up 34.50% to $2.69 in early afternoon trading.
-- Written by Shanthi Bharatwaj in New York. >Contact by Email. Follow @shavenk