Fannie Mae and Freddie Mac return to center of debate as Ackman pushes for exit from conservatorship
Shares of the two have risen more than 60% since October 14, and Bill Ackman sees the midterm elections as a chance to take them out of government custody.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM CNBC MARKETS · 2 MIN
According to CNBC Markets, shares of Fannie Mae and Freddie Mac rose more than 60% between October 14 and Monday's close, and gained about 3% on Tuesday. The movement gained strength with the campaign of Bill Ackman, from Pershing Square, who sees the midterm elections as an opportunity to remove the two companies from government supervision.
The two have been under conservatorship since September 2008, in the midst of the financial crisis, and were delisted from the NYSE in 2010, trading over the counter since then. Ackman owns shares in both and, in the quarterly letter to shareholders released on Monday, stated that the shares could rise tenfold from current prices.
President Trump supports the end of the conservatory, an issue that, according to the same source, remains controversial both in politics and in the economy. Ackman argues that privatization would isolate companies from political interference and cites, as a risk scenario, the maintenance of tutelage with Democrats in the White House, pushing for lower credit standards.
The US Treasury has a stake worth around US$388 billion in the two companies. An exit would require preferred shares and warrants, and recapitalization required by capital limits could occur through the issuance of common shares. According to CNBC Markets, Congress may also need to pass a law to restructure the government's role in real estate financing.
Treasury Secretary Bessent said the exit could happen before the end of Trump's term, next year or the year after, and that housing affordability guides the decision. According to him, the goal is not to increase the mortgage spread (MBS) over Treasuries.
What changes for the investor
The central point for those who follow the stock market, interest rates and the dollar is the distance between the potential for reorganization and the regulatory path. An eventual exit depends on recapitalization, instruments such as preferred shares and warrants and, possibly, a law approved by Congress, steps that do not yet have a defined date. The recent increase, therefore, reflects expectations about an uncertain outcome. It is worth monitoring the electoral calendar, the design of possible recapitalization and the behavior of the mortgage spread in relation to Treasuries, the variable that the Treasury says it wants to preserve.
Automatically translated from Portuguese.
