Bill Ackman’s hedge fund-firm took stakes in Fannie Mae and Freddie Mac, the government-owned mortgage insurers that investor Bruce Berkowitz is seeking to restructure, and said it may seek talks with management, shareholders and the government.
Pershing Square Capital Management LP bought a 9.98 percent stake in the common shares of Fannie Mae that aren’t owned by the U.S. government, and a 9.77 percent stake in the Freddie Mac shares available to the public, according to a regulatory filing Friday. The government owns 80 percent of both agencies since bailing them out in 2008.
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Ackman and Berkowitz are seeking to influence the future of the government agencies at a time when the consensus in Washington among Democrats and Republicans is that Fannie Mae and Freddie Mac should be dismantled and shareholders wiped out. Any effort to recapitalize Fannie Mae and Freddie Mac would require government approval and the White House and Congress have shown no interest so far in plans proposed by private investors.
“Putting the linchpin of the secondary housing-finance market in the hands of few wealthy hedge funds has got to make policy makers queasy,” Nela Richardson, a senior finance analyst with Bloomberg Government, said Friday on Bloomberg Television.
Fairholme Capital Management LLC, the mutual-fund firm run by Berkowitz, this week proposed that it and other preferred shareholders buy two businesses out of Fannie Mae and Freddie Mac that insure mortgage-backed securities to salvage a bet on the two agencies.
The Obama administration believes Fannie Mae and Freddie Mac should be wound down, the Treasury Department said in a statement.
Charles Zehren, a spokesman for Pershing Square at Rubenstein Associates, declined to comment on Friday’s filing.
Pershing Square started buying the stakes on Oct. 7 and accelerated purchases after Oct. 21, according to the filing. The firm said it disclosed the stakes and decided to seek talks “in light of the proposed Fairholme transaction.”
“The issuer’s common stock is undervalued and is an attractive investment,” Pershing Square said, adding it may seek “discussions with management, the board, other stockholders of the issuer, representatives of the federal government, and other relevant parties.”
Fannie Mae shares gained 7.2 percent to $3.28 in New York Friday, and Freddie Mac gained 7.6 percent to $3.12; both trade on the OTC Bulletin Board.
Fannie Mae’s 8.25 percent preferred shares, which have a par value of $25, rose 1.3 percent to $9.93 at midday in New York. That’s the highest since 2008, when Fannie Mae and Freddie Mac were seized by the government.
Berkowitz is the single largest investor in the preferred shares, with a stake of $3.5 billion to $4 billion at par value in the two agencies. The shares currently trade at about 40 percent of par value.
Under Fairholme’s proposal, the businesses would be acquired in exchange for preferred shares at their full par value, or $34.6 billion. Berkowitz and investors including hedge fund-firms Paulson & Co. and Perry Capital LLC bought the shares in a wager that the U.S. government would keep the mortgage companies alive. Fairholme’s proposal would raise at least $17.3 billion in additional funds from preferred holders and through a rights offering, Fairholme said in a Nov. 13 statement.
The Treasury amended its agreement with the agencies in August 2012, directing all dividends to the government. Berkowitz and other preferred shareholders sued the Treasury, arguing the government had expropriated the value of their holdings.
The government seized Fannie Mae and Freddie Mac after the mortgage-finance companies were pushed to the brink of bankruptcy by investments in bad loans. The two took $187.5 billion in taxpayer aid before reporting record profit this year as the housing market rebounded.
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