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Article for Fannie Mae
The case against the US Government got a major victory on Monday.
We believe the Government will lose the case.
Investors have a “once in a lifetime” opportunity to profit from this decision.
The upside is greater than 10x the current price, unbelievable it remains so mispriced.
One of the exciting take-a-ways in “The Big Short” comes at the moment a few investors realize the magnitude of the opportunity in front of them, and are shocked that virtually no one else has caught wind of it.
This is precisely how we feel about shareholder’s lawsuits against the US Government regarding Fannie Mae (TICKER: OTCQB:FNMA) and Freddie Mac (TICKER: OTCQB:FMCC). The opportunity, if shareholders – which includes Bruce Berkowitz, Bill Ackman, and Perry Capital – are correct, is a return of greater than 10x the current price.
Before Monday, the case looked quite favorable towards shareholders. After the unsealing of documents by Judge Sweeney, we find it a near certainty that the Government will lose this case. And yet, the price continues to reflect an expected poor outcome. We believe this presents an unparalleled opportunity, for those willing to act before the “skies have cleared”.
A (very) short review of the situation:
Fannie Mae and Freddie Mac were “taken over” and placed into conservatorship in 2008 on the premise that they were facing insolvency due to the fact that they were at the center of the housing/financial bubble. The Government forced them to take $187B. The deal was structured so that they had to return the $187M and pay a 10% dividend.
Then, in 2012, just as Fannie/Freddie returned to profitability, the Government changed the terms of that agreement and decided to sweep (i.e. steal) all profits from the companies in perpetuity.
This is obviously, and incredibly illegal.
Hundreds of thousands of shareholders were negatively affected when the Government illegally changed the terms of the “bailout.” As a result, there are some 15 different lawsuits currently working its way through the courts. Two of them (Perry Capital and Fairholme) are in the later stages and hold special promise.
In fact, this week, the presiding judge in the Fairholme case (Judge Sweeney) absolutely eviscerates the Government’s position on using privilege in holding documents from the public. The seven documents that were unsealed as a result of Judge Sweeney’s position shine a bright light on exactly what the Government is hiding, and it is nothing short of damning to their defense.
I highly suggest, if this interests you, to read about this in much greater detail. You should start by reading the reports, articles, and websites detailed below. There is 100x the information I highlight below available for those willing to spend some time researching (I believe it would be the best time one could spend on reviewing an investment idea considering the opportunity.)
Should (WHEN) the Government loses this case (in our opinion), it will be a major boon to shareholders of both the common and preferred shares.
Just how much of a boon?
Many preferred shares are trading in the $3-$5 range and have a par value of $50. The common is trading at ~$2. Bill Ackman, has posted an excellent presentation (linked below), in which he believes the valued of the common to be worth between $20-$50/share. That is a return of between 10-25x the current price.
This case is a legal battle. There is nothing wrong with Fannie and Freddie other than that (except the board and some management need replacing). They are incredibly profitable enterprises that serve a great purpose for the American homeowner.
Maybe, one day, Michael Lewis will decide to write a book on the entire saga. I’m certain it will be a sickening and exciting read.
As always, do your own homework.
Source – Maredin Capital Advisors
Broad street alerts has not been compensated for the mention of any publicly traded companies in this article nor do we own positions in any of the companies in this article.
Broad Street Alerts was previously compensated eighteen thousand five hundred dollars by star media llc for the mention of FNJN however, that contract has expired.