ttt94830 Over the past year, hedge funds and ot
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Posted On: 05/01/2014 8:31:41 PM
ttt94830
Over the past year, hedge funds and other investors have bid up the shares, once considered worthless. But those are effectively political and legal bets, not financial ones, because Fannie and Freddie's bailout agreement doesn't allow them to pay back the government, meaning they can't emerge from government control without action from Congress or the Treasury Department. <br /><br />Several investors, including Fairholme, sued the U.S. Treasury last month to challenge the government's bailout terms, which allow taxpayers to recoup all of the companies' profits. <br /><br />The Fairholme Fund holds about 6.9% of its portfolio in the two companies, a position valued at $566 million as of May 31, according to the company. The fund, which closed on Feb. 28, will reopen Aug. 19. <br /><br />For Mr. Berkowitz's bet to pay off, he and other investors need one of two things to happen: persuade Congress and the White House to revamp or liquidate Fannie and Freddie in a way that will preserve value for the shares, or win a fight in court. <br /><br />Bills introduced in the House and Senate would liquidate the companies as part of a broader mortgage-market overhaul. Last week, President Obama weighed in, saying the country "couldn't have a situation in which the government" would backstop all of the loans made by "these quasi-private institutions, and then if things go wrong, suddenly taxpayers are on the hook." <br /><br />"Each of the major decision makers who has weighed in on this...has said emphatically and repeatedly that they will not allow these shareholders to be paid off," said Jim Parrott, a former White House housing adviser. Without a successful legal challenge or "an entirely different set of decision makers," he said, "your bet faces mighty long odds." <br /><br />Mr. Berkowitz said he doesn't take that view. <br /><br />"I think common sense will prevail," he said. "There's a huge win out there for all constituents-the taxpayers, homeowners and preferred shareholders." <br /><br />Under mutual-fund regulations, Mr. Berkowitz could invest up to 25% of Fairholme's portfolio each in Fannie and Freddie, although he has no plans to reach that maximum amount as it would require him to downsize his other positions, he said. A more realistic scenario would see him increasing his position to about 5% each of the portfolio, or a total of $800 million based on the value of the shares today, he said. <br /><br />Mr. Berkowitz is no stranger to unpopular bets. <br /><br />He bought into American International Group Inc. AIG -2.12% in the first quarter of 2010, when the insurer was trading in a range of $22 to $34 a share, and when many investors were still shying away from financial stocks. AIG was trading late Thursday at about $47. He eventually accumulated a position of 86.1 million shares, making Fairholme Capital Management -the management company of the Fairholme Fund-AIG's largest investor as of June 30, according to the company. <br /><br />"The seeds of great performance are usually sown in times of intense fear after a disaster," Mr. Berkowitz wrote in an October 2011 letter to investors. <br /><br />The bet didn't initially pay off, and investors pulled billions from the fund as performance plunged. <br /><br />By 2012, as the share prices of AIG and other financial stocks rose, the fund rebounded, posting a yearly return of 35.8%, compared with 16% for the Standard & Poor's 500-stock index. Fairholme is up 21% this year through Aug. 14, compared with 19.8% for the S&P 500. <br /><br />After the government seized Fannie and Freddie, it agreed to inject vast sums of aid in exchange for a new class of stock-so called "senior preferred" shares-that initially paid a 10% dividend. It also received warrants to acquire 80% of the common shares; it didn't assume full ownership to avoid bringing $5 trillion in assets and liabilities onto the federal ledger. <br /><br />Few saw any value in those shares after their collapse, but some investors, including hedge funds Perry Capital LLC and Paulson & Co., began buying the preferred shares at deep discounts. <br /><br />The government upended investors' positions last year when it amended the terms of its rescue. The revamped bailout doesn't require any dividend payment when the firms lose money, but when they turn a profit, all of those earnings are sent to the Treasury as dividends. <br /><br />Fairholme's lawsuit challenges those terms. A Treasury spokesman said, "We fully believe our actions have been lawful and appropriate." <br /><br /><a style="color: #336699; text-decoration: none; cursor: pointer;" rel="nofollow" href="http://clicks.aweber.com/y/ct/?l=FwJgA&m=3gJrG1PugtlloMm&b=tGA1koTqXJvhALSCbuTeEA" target="_blank">http://online.wsj.com/article/SB10001424127887324139404579015032274244954.html</a> <br /><em><br />FNMA/FMCC's profit bigger than APPLE, EXXON, JP MORGAN, BAC, CITI, BERKSHIRE . DO YOU THINK SHARE PRICE WILL STAY AT THIS LEVEL... NO WAY.. IMHO, C-SHIP WILL END AND FNMA/FMCC WILL BE UPLISTED. READ, CHECK LINKS AND MAKE YOUR OWN DECISION. </em></strong></em></em>
Over the past year, hedge funds and other investors have bid up the shares, once considered worthless. But those are effectively political and legal bets, not financial ones, because Fannie and Freddie's bailout agreement doesn't allow them to pay back the government, meaning they can't emerge from government control without action from Congress or the Treasury Department. <br /><br />Several investors, including Fairholme, sued the U.S. Treasury last month to challenge the government's bailout terms, which allow taxpayers to recoup all of the companies' profits. <br /><br />The Fairholme Fund holds about 6.9% of its portfolio in the two companies, a position valued at $566 million as of May 31, according to the company. The fund, which closed on Feb. 28, will reopen Aug. 19. <br /><br />For Mr. Berkowitz's bet to pay off, he and other investors need one of two things to happen: persuade Congress and the White House to revamp or liquidate Fannie and Freddie in a way that will preserve value for the shares, or win a fight in court. <br /><br />Bills introduced in the House and Senate would liquidate the companies as part of a broader mortgage-market overhaul. Last week, President Obama weighed in, saying the country "couldn't have a situation in which the government" would backstop all of the loans made by "these quasi-private institutions, and then if things go wrong, suddenly taxpayers are on the hook." <br /><br />"Each of the major decision makers who has weighed in on this...has said emphatically and repeatedly that they will not allow these shareholders to be paid off," said Jim Parrott, a former White House housing adviser. Without a successful legal challenge or "an entirely different set of decision makers," he said, "your bet faces mighty long odds." <br /><br />Mr. Berkowitz said he doesn't take that view. <br /><br />"I think common sense will prevail," he said. "There's a huge win out there for all constituents-the taxpayers, homeowners and preferred shareholders." <br /><br />Under mutual-fund regulations, Mr. Berkowitz could invest up to 25% of Fairholme's portfolio each in Fannie and Freddie, although he has no plans to reach that maximum amount as it would require him to downsize his other positions, he said. A more realistic scenario would see him increasing his position to about 5% each of the portfolio, or a total of $800 million based on the value of the shares today, he said. <br /><br />Mr. Berkowitz is no stranger to unpopular bets. <br /><br />He bought into American International Group Inc. AIG -2.12% in the first quarter of 2010, when the insurer was trading in a range of $22 to $34 a share, and when many investors were still shying away from financial stocks. AIG was trading late Thursday at about $47. He eventually accumulated a position of 86.1 million shares, making Fairholme Capital Management -the management company of the Fairholme Fund-AIG's largest investor as of June 30, according to the company. <br /><br />"The seeds of great performance are usually sown in times of intense fear after a disaster," Mr. Berkowitz wrote in an October 2011 letter to investors. <br /><br />The bet didn't initially pay off, and investors pulled billions from the fund as performance plunged. <br /><br />By 2012, as the share prices of AIG and other financial stocks rose, the fund rebounded, posting a yearly return of 35.8%, compared with 16% for the Standard & Poor's 500-stock index. Fairholme is up 21% this year through Aug. 14, compared with 19.8% for the S&P 500. <br /><br />After the government seized Fannie and Freddie, it agreed to inject vast sums of aid in exchange for a new class of stock-so called "senior preferred" shares-that initially paid a 10% dividend. It also received warrants to acquire 80% of the common shares; it didn't assume full ownership to avoid bringing $5 trillion in assets and liabilities onto the federal ledger. <br /><br />Few saw any value in those shares after their collapse, but some investors, including hedge funds Perry Capital LLC and Paulson & Co., began buying the preferred shares at deep discounts. <br /><br />The government upended investors' positions last year when it amended the terms of its rescue. The revamped bailout doesn't require any dividend payment when the firms lose money, but when they turn a profit, all of those earnings are sent to the Treasury as dividends. <br /><br />Fairholme's lawsuit challenges those terms. A Treasury spokesman said, "We fully believe our actions have been lawful and appropriate." <br /><br /><a style="color: #336699; text-decoration: none; cursor: pointer;" rel="nofollow" href="http://clicks.aweber.com/y/ct/?l=FwJgA&m=3gJrG1PugtlloMm&b=tGA1koTqXJvhALSCbuTeEA" target="_blank">http://online.wsj.com/article/SB10001424127887324139404579015032274244954.html</a> <br /><em><br />FNMA/FMCC's profit bigger than APPLE, EXXON, JP MORGAN, BAC, CITI, BERKSHIRE . DO YOU THINK SHARE PRICE WILL STAY AT THIS LEVEL... NO WAY.. IMHO, C-SHIP WILL END AND FNMA/FMCC WILL BE UPLISTED. READ, CHECK LINKS AND MAKE YOUR OWN DECISION. </em></strong></em></em>
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