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Two major investors have shored up their stock in Fannie Mae and Freddie Mac after a judge dismissed two lawsuits regarding the sweeping of GSE profits into the U.S. Department of Treasury, causing the price of GSE stock to plummet.
William A. Ackman, head of Pershing Square, and Bruce Berkowitz, head of Fairholme Capital, have both added to their respective stakes in the two GSEs. In the last week of September, Judge Royce Lamberth threw out lawsuits filed by Fairholme and Perry Capital against the government claiming that the sweeping of GSE profits into Treasury was illegal. The judge ruled the sweeping of the profits was legal under the Housing and Economic Recovery Act.
Pershing Square filed two similar lawsuits against the government in mid-August, and those suits are still pending. Fairholme and Perry have each filed an appeal of the judge's decision to dismiss their lawsuits. Pershing Square no longer regularly reports its holdings in Fannie Mae and Freddie Mac, but it is known that the New York-based hedge fund is the largest non-government owner of GSE common stock.
"Fairholme’s conviction in its Fannie Mae and Freddie Mac positions has not changed, and Fairholme actively monitors all of its positions – particularly during periods of market overreaction," a source familiar with Fairholme said.
Pershing Square could not immediately be reached for comment.
The share price for both Fannie Mae and Freddie Mac experienced gains of more than 5 percent last week after the announcements by Ackman and Berkowitz, but the price of shares for both is still down by more than 30 percent since the judge's ruling.
The government seized control of Fannie Mae and Freddie Mac back in September 2008 at the height of the nation's financial crisis, after which Treasury provided $188 billion to bail out the companies. Fannie Mae and Freddie Mac have since become profitable and have returned $218.7 billion in dividends to taxpayers. The Obama administration wants to phase out the two GSEs, which have been in conservatorship since the government takeover six years ago.
