Fannie Mae and Freddie Mac, which
attracted investors such as hedge-fund manager Bill Ackman even
as the mortgage giants hand over their profits to taxpayers, are
Fannie Mae fell 3.4 percent to $2.88 in New York, after
dropping 25 percent from mid-August through last week. Freddie
Mac declined 3.1 percent today. The plunge erased gains for the
year for the companies, which surged 1,000 percent in 2013 on
speculation that investors could compel lawmakers or courts to
force the government to give up exclusive rights to the
earnings. Their preferred shares have also slumped.
Ackman and fund manager Bruce Berkowitz have been joined by
Wall Street and individual investors betting on shares that
could be wiped out without changes in U.S policy. A panel this
month formally moved to the full Senate a bill that would wind
down the mortgage companies, boosting the odds of debate that
“could drive headline risk,” Compass Point Research Trading
LLC said. Also, a judge derailed a case by a plaintiff seeking
to sue the government on behalf of Washington-based Fannie Mae.
“There have been two separate events which should be seen
as incremental negatives,” Compass Point’s Isaac Boltansky said
in a Sept. 22 note. He’d previously said that the pace at which
another legal case was proceeding might have frustrated
investors eager for quick gains who “therefore changed their
Earlier this month, the timeline for the sharing of
information, or discovery, in that suit by Berkowitz’s Fairholme
Capital Management LLC proved longer than some investors
expected, according to Compass Point. A court set a March
conclusion for discovery.
Ackman’s Pershing Square Capital Management LP and Richard Perry’s Perry Capital LLC have also sued the U.S. over Fannie
Mae and Freddie Mac. Representatives for the investors declined
to comment or didn’t respond to messages last week seeking
“It would be a mistake to infer that periodic dips in
share price are reflective of the viability of legal
challenges,” said Tim Pagliara, executive director of Fannie
Mae and Freddie Mac shareholder-advocacy group Investors Unite,
in an e-mailed statement. “The hard truth is that the U.S.
government faces serious exposure in the courts, which could
amount to penalties of up to nearly $200 billion.”
The recent ruling in the case of the investor seeking to
sue on behalf of Fannie Mae “had no bearing on the core
complaints” of other lawsuits in which stockholders claim that
the U.S. had no right to begin in 2012 to sweep the firms’
profits, he said.
While down this year, Fannie Mae (FNMA)’s common shares have
climbed from 20 cents at the end of 2011. The stock closed as
high as $5.82 in March, before the leaders of the Senate banking
panel introduced the bipartisan bill that would replace the
companies and excludes measures that would reward shareholders.
One series of Fannie Mae’s preferred shares, with a face
value of $25, fell 16 percent from Aug. 15 to $9.42. Those
securities, which closed as high as $12.70 in March, ended last
year at $8.75, up from $1.38 at the end of 2011. Private-equity
and hedge funds have generally focused on the preferred shares.
Fannie Mae and McLean, Virginia-based Freddie Mac, which
help finance about 60 percent of new U.S. mortgages by
guaranteeing bonds backed by the loans, were seized by the
government in 2008 and later received more than $180 billion of
capital injections before returning to profitability.
To contact the reporter on this story:
Jody Shenn in New York at
To contact the editors responsible for this story:
Shannon D. Harrington at
Dan Kraut, Steven Crabill