Bill Ackman's Plan to Save Fannie and Freddie

Bill Ackman's Pershing Square Capital Management, L.P. released the following proposal today for the restructuring of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Note that Pershing Square is short FNM and FRE.

Fannie Mae Restructuring-Final - Upload a Document to Scribd

Read this document on Scribd: Fannie Mae Restructuring-Final

Comments

[glassbox:]

Its amazing, this guy is shameless. I wonder who he borrowed the shares from? Its equally amazing that people are willing to lend to him.

2008 Jul 15 05:24 PM

[David Lentz:]

Seems like a perfectly ordinary restructuring, essentially what would be accomplished in a Chapter 11 proceeding. Happens to lots of companies when they lose control of things and their debts cannot be accommodated by their revenue stream. Nothing new here, and I see nothing wrong with his proposal.

The business is able to carry on after the restructuring, with the brunt of the pain being felt by the shareholders, as is always the case in a bankruptcy. It would be nice to see the existing lousy management being replaced as well, but that will be an issue when they want to obtain credit or sell new shares into the market.

Only idiots would allow the same clowns to repeat their prior mistakes. Give some new clowns a chance.

Given the importance of Fannie and Freddie in the larger scheme of things, I would think that a shotgun bankruptcy proceeding as rapidly as possible would be in the best interests of everyone -- except the current stockholders, whose goose is cooked in any event.

2008 Jul 15 05:49 PM

[SA Guest:]

The links below are the video version of the above -- but my favorite scene is at minute 4 of part 2 where he rationalizes his short positions:

Part 1
www.cnbc.com/id/158402...

Part 2
www.cnbc.com/id/158402...

2008 Jul 15 06:56 PM

[buyforeclos...:]

reinstate uptick

2008 Jul 15 06:57 PM

[borisb:]

We dont need his plan and he is not in charge.

2008 Jul 15 06:59 PM

[TL NIEL:]

Acman gots some real chutspah- trying to act like he's being some sort of altriuist do-gooder while holding what is essentially an activist short position. Like what that beady eyed twerp David Einhorn is trying to do with Lehman brothers, Acman is just being like a Carl Icahn- but in reverse. Instead of pushing for an undervalued company to "pursue strategic alternitives to enhance shareholder value", he's lobbying the government to basically puruse drastic altneratives to destroy shareholder value for the benefit of rich ass hedge fund boys who had ethical bypasses at birth.

The funny thing is his justification- "well, you know, I have a lotta underwater long positions to make up for"
What an SOB!

2008 Jul 15 07:38 PM

[mkreisel:]

I have a feeling Ackman will end up like Jesse Livermore.

2008 Jul 15 09:45 PM

[drmalaka:]

Whether you like the guy or not he has a good track record with what is going on right now.

He was on the monolines from the beginning, pounding the table, and you can't blame him for their demise. I assume he is right on this one too. These two companies have absolutely no value for shareholders. The only thing that will be left of these stocks is what the taxpayer picks up, which of course is bs becuase the taxpayer should not be saving equity holders.

2008 Jul 15 10:55 PM

[Bharper:]

This is very preliminary and early...FNM/FRE's liabilities are covered by the highest quality asset mix of any financial institution in the country. At this point the backstop is just that; a backstop, over time this thing will likely correct itself as the financial panic fades

2008 Jul 15 11:07 PM

[UncleLongHair:]

FNM and FRE aren't insolvent and don't need a bailout. They're earning gobs of money on the higher spreads, lower risks, and increased market share starting a year ago when all of the fringe players in the mortgage industry were dealt fatal blows. FNM and FRE were never bottom feeders in the industry, they deal primarily in the cream of the US mortgage crop. Most analysis on the companies, like Ackman's, doesn't even take a passing glance at quantifying the default risk and how FNM and FRE can afford it, because if it did, people would realize that the situation is nowhere near as dire as the short sellers want you to think.

Everyone throws around the number of $5 trillion of mortgages guaranteed by FNM/FRE. Even after the widely publicized increase in defaults and losses, default rates are still well below 1%. Even at 1%, that is $50 billion of losses, spread over many years. This assumes default recoveries of 0%, though recoveries will be well above zero with their conservative assets. FNM and FRE currently have total capital of around $95 billion and have plans to raise another $10 billion, and have many options for raising more capital including retaining earnings (i.e. cutting the dividend). They have plenty of capital to withstand current losses, and the ability to raise more.

Ackman's plan makes sense only to himself. It looks like a teenager threw together his slide show after school, he may as well have drawn it with crayons. It is outrageous that he can short the stock, and then go on TV and politely suggest that everyone get together to restructure a company that needs no restructuring just so he can make an enormous return on his investment. The thing that would "benefit America" would be to have investors and journalists laugh in his face when he tries to pull the wool over their eyes.

The timing is no surprise, as Ackman is cranking his publicity machine during the company's quiet period, as the Q2 numbers are probably nearly done but not yet reported, and they can't comment on Ackman's stupid allegations. Ackman is all too aware of the unlevel communications playing field, where executives are limited in how and when they communicate and he is not. He also knows that simply creating fear, uncertainty and doubt (FUD) around a financial company is enough to destroy it, as happened with Bear Stearns and IndyMac.

Ackman is simply trying to initiate a "run on the bank" at Fannie and Freddie, by undermining the investment community's confidence in their obligations. This is all an extremely thinly veiled attempt by Ackman to rape the capital markets for more ill-gotten gains. Analysts and investors should simply ignore him.

Uncle

2008 Jul 16 12:59 AM

[fxtrader07:]

why anyone listens to ackman whio ist just talking his book wherever and whenever possible - be it mbi, abk and now the fnm/fre-charade - is beyond me. This guy is an unscrupoulos hedgefund manager that was/is short the stocks of the very institutions he claims that need rescue - and of course, HIS rescue plans. ask the fox how the hennhouse should be organized to make it safe, eh?
it's a complete joke.
at least, it is NOW official that naked shorting exists and is indeed a problem. gee, herb, the unjournalist greenberg will stillinsist it doesn't even exist.
but it took the chicken to copme home to roost to admit the problem. That the sec is banning naked shorting just for a handful of darling stocks is absolutely stunning and shopws how rigged and manipulated these markets are. naked shorts in goldman sucks are banned - but naked shorts by goldman are not? LMAO
this is frickin' unbelievable.

2008 Jul 16 03:43 AM

[jswede:]

he was alone - and dead on - about MBIA about 5 years before anyone else even listened.

and I'd hope he talks his book - that's what any good manager will do. you don't have to listen

2008 Jul 16 04:48 PM

[UncleLongHair:]

Successfully shorting another company 5 years ago doesn't give him the moral high ground when trying to line his pockets again. He tries to wrap himself in the shroud of a do-gooder, but he's just out to make a buck.

The SEC just issued subpoenas to short sellers investigating market manipulation, I wonder if Ackman is on the list. I bet he is.

2008 Jul 16 05:18 PM

[davenerven:]

I wonder if Ackman is still short FNM and FRE...

2008 Jul 23 07:50 PM