Bill Ackman Ups the Ante With Bigger Bet on Fannie and Freddie
Activist investor Bill Ackman has been in the spotlight most recently for his campaign to expose Herbalife (NYSE:HLF) as the pyramid scheme that he believes it to be, but according to the recent filing of his firm’s 13-D with the Securities and Exchange Commission, Pershing Square has upped its stakes in Fannie Mae (FNMA.PK) and Freddie Mac (FMCC.PK), ValueWalk is reporting.
Ackman’s Pershing Square Capital increased its holdings in the Federally-tied companies from 9.8 percent to nearly 11.1 percent, as whispers indicate that the mortgage-related companies will remain in operation and the bipartisan bill put forth by Senators Johnson and Crapo to overhaul the housing finance process will not pass Congress, ValueWalk said.
Pershing Square now holds about 115 million shares in common stock, a surprising move given that the common stock is seen as a riskier bet than preferred stock. Pershing Square joins Fairholme Capital and Perry Capital, both aggressive buyers of the troubled Fannie and Freddie stocks after the housing and finance crisis resulted in a meteoric fall of the two mortgage giants, after which the federal government stepped in.
ValueWalk says that Ackman’s bet on the firms are an indication that he and his firm are counting on it being around for some time, rather than dissolved or restructured as apart of a housing finance reform measure. CNBC’s Scott Wapner spoke with David Faber, also of CNBC, who said that Ackman had chosen a much more risky approach by purchasing the common stock, while many of the hedge fund players have invested in the preferred, the site said.
“He’s a gunslinger,” Wapner said of Ackman, after having a phone conversation with him on his positions on Monday morning. “There are those on Capital Hill who are saying there is not a lot of support to get this done, that being the Johnson & Crapo plan,” Wapner added, noting that Ackman’s play is that the firms will continue to operate independently, ValueWalk quoted.
Wapner also said that it’s the common shareholders, like Ackman and his firm, who risk losing everything if the firms head south. The holder hedge funds holding preferred stock are currently in the process of facing off with the government in court, assuming that the preferred shareholders will receive compensation before the common shareholders, ValueWalk added.
Freddie Mac ended the day up nearly 9 percent, to $3.86 per share, while Fannie Mae ended up 9.24 percent, or 33 cents, to $3.90. However, ValueWalk reported last week that bank analyst Dick Bove had lowered his estimates on the two firms from $1.53 per share to $1.52 per share for 2014, from $1.51 to $1.42 per share in 2015, and from $1.64 to $1.32 per share in 2016. “The sharp reduction in the 2016 forecast is due to the expected reduction in fees from mortgage put-backs,” ValueWalk quote Bove as writing in a March 28 report.