Catches aside, plan for Frannie could just work

Bruce Berkowitz's presentation of his plan to purchase and recapitalize the mortgage insurance business of Fannie Mae (FNMA +10.5%) and Freddie Mac (FMCC +8.6%) cleverly leads off with quotes from politicians - including the president and FHFA chief Ed DeMarco - calling for private capital to play a larger role in the mortgage market.

Presentation slides here.

Bloomberg's Matt Levine's review here.

His plan actually makes pretty good sense, but with one catch: The conversion of preferred stock for equity in a new, debt-free company with $52B in assets represents somewhere in the area of a $20B-$30B windfall for those owning the preferred.

The plan also talks about bringing competition to the business even as it creates a new cheaply-capitalized company $52B in size. Far smaller competitors can hardly hope to match.

Earlier: Ackman joins the fray

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Comments (11)
  • sho
    , contributor
    Comments (175) | Send Message
    What will happen to the common shares?
    15 Nov 2013, 04:09 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    The common would most likely get wiped out.


    A bit like the old GM shares.
    15 Nov 2013, 04:14 PM Reply Like
  • xxkevo
    , contributor
    Comment (1) | Send Message
    I'm new to this... so does this mean we will lose everything if we currently hold shares of FNMA?
    16 Nov 2013, 09:15 AM Reply Like
  • rick3568
    , contributor
    Comments (5) | Send Message
    Guess you didnt read the offer. 20% goes to common - thats a big number in case you didnt know that either.
    18 Nov 2013, 08:16 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message


    :::As a result of the flood of new shares, existing shareholders, much as previously expected, would end up owning 1% of the pro forma equity, and assuming straight mathematic dilution, the shares which closed at $1.85 would be worth a little over 1 cent.:::
    18 Nov 2013, 02:39 PM Reply Like
  • Ahmed Amin
    , contributor
    Comments (18) | Send Message
    I do not think they will get wiped out...
    • Pershing Square discloses a 9.98% stake in the common stock of Fannie Mae (OTC:FNMA) and a 9.77% stake in the common of Freddie Mac (OTC:FMCC), and its intention to get involved in the reorganization discussions.


    This is a lot of money to step in with this... Is it talked about anywhere in the deal?
    15 Nov 2013, 05:22 PM Reply Like
  • Meltdownman
    , contributor
    Comments (99) | Send Message
    20% of the leftovers will go to common shares.
    15 Nov 2013, 10:53 PM Reply Like
  • DANNY B.
    , contributor
    Comments (3) | Send Message
    How safe is FNMA stocks if rating 1 thru 10 being 10 the best???
    16 Nov 2013, 05:48 AM Reply Like
  • 4thethrillofit
    , contributor
    Comments (53) | Send Message
    So they are bringing $34.6B to this deal which they will use to buy out the preferreds, which is themselves? Leaving the crappy legacy business for the " run off" company- which they say will pay back the treasury- Taking on only new business from Jun 2014.
    Sounds like Fairholme wants the Gov't cash cow for themselves and screw the commoners. With the lawsuits it seems there is a possibility that the commons might eventually get some appreciation but not with this proposal.
    16 Nov 2013, 09:37 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    I believe Berkowitz sold his common stake before taking this proposal public.
    16 Nov 2013, 11:18 AM Reply Like
  • Leo50
    , contributor
    Comments (188) | Send Message
    When they re-organize, they re-issue new shares and convert the old ones like doing a stock split or reverse split. It is up to them to do it. Not necessarily to be done.
    16 Nov 2013, 03:10 PM Reply Like
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