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Top Fund Managers See Massive Quote Losses In Their Stakes In Frannie and Freddie

October 06, 2014 | About:

Fairholme Fund's (Trades, Portfolio) and Perry Capital's cases were the most prominent and closely watched against the government over taking a 100% of Frannie (FNMA) and Freddie (FMCC) profits. They have lost their legal challenge to a change that the government made after the 2008 bailouts of Fannie and Freddie to send all of the firm's profits to the Treasury. Currently the government faces about 20 federal legal challenges brought by investors that have kept investors from participating in Fannie and Freddie's post-bailout profits. After a federal judge in the U.S. District Court for the District of Columbia dismissed Fairholme Fund's (Trades, Portfolio) and Perry Capital cases share for Fannie and Freddia including preferred shares fell between 30% to 50% on Wednesday, October 1, 2014.

Judge dismisses top fund managers' cases

On Tuesday September 30, 2014, a judge in the U.S District Court for the District of Columbia dismissed claims brought against the government over Fannie and Freddie profits by two investors. U.S District Judge Royce Lamberth rejected their claim on the growns that Congress gave regulators and the Treasury the power to take the companies' profits in the Housing and Economic Recovery Act.

He wrote in Is Opinion, “It is understandable [for the profit sweep] to raise eyebrows, or even engender a feeling of discomfort.” He added that the act and the language of the companies’ stock certificates compel “the dismissal of all of the plaintiffs’ claims.”

Hedge Fund Manager Bill Ackman (Trades, Portfolio) Founder of Pershing Square Capital has filed his own lawsuite against the government in August in the U.S. Court of Federal in Washington. He in his suit, he is claiming that the government's diversion of profits violates the constitution's Fifth Amendment, which prohibits the government taking private property for public use without just compensation. The Rule on Tuesday September 30, doesn't effect Pershing Capital's case.

Massive drop in Fannie and Freddie shares

In 2013, Perry Capital and Fairholme Fund (Trades, Portfolio) Inc. filed lawsuits against the government over the profits of Fannie and Freddie being taken by the government. After it was disclosed that Fairholme Fund's Bruce Berkowitz (Trades, Portfolio) had taken a stake in Fannie and Freddie preferreds adding up to 15% of the firm's total portfolio. Other Firms Perry announced or disclosed that they had taken stakes in Fannie and Freddie. Bill Ackman and Carl Icahn (Trades, Portfolio) both recently disclosed that they have both taken positions in Fannie and Freddie Common Shares. With the biggest names on Wall Streets taking Stake in Fannie and Freddie lead to both Fannie and Freddie commons and preferred massively increasing in share price.

Fannie Commons Shares (FNMA) fell to $1.73 on October 1, 2014 down from the day before $2.69 yesterday falling in one day nearly 30%. Freddie (FMCC) as well was down to 1.70, falling nearly 36%. Most of the top fund managers own Fannie and Freddie preferred shares which as well fell, falling over 50% in the same day. Private Investors own nearly $33 billion in Fannie and Freddie preferred shares.

Top fund managers' stake in Fannie and Freddie:

  • Bruce Berkowitz (Trades, Portfolio)'s Fairholmes Capital – owns 37 million shares of Fannie and Freddie's common shares and also owns 118 million preferred share of Fannie and Freddie.
  • Bill Ackman (Trades, Portfolio) Pershing Square Capital – owns 115.56 million common shares in Fannie and owns 63 million shares of Freddie as well.

Other Fund Managers with Stakes in Fannie and Freddies are John Paulson (Trades, Portfolio), Richard Perry (Trades, Portfolio), David Ford's and Claren Road Assets Management.

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