Investor Bill Ackman believes that two of his longest-held investments, Fannie Mae and Freddie Mac, could see significant gains as they exit government conservatorship under President-elect Donald Trump’s second term. The two mortgage giants have been in conservatorship since 2008, with the US Treasury Department holding over $193 billion in senior preferred stock and warrants.
Ackman thinks that the new administration will finish what started during Trump’s first term, which saw Treasury Secretary Steven Mnuchin end the net sweep agreement and allow Fannie and Freddie to retain profits. He envisions a path where the GSEs are credited for their previous distributions to the Treasury, retire the senior preferred stock, and set a 2.5% capital requirement.
The potential upside is significant, with Ackman estimating that Fannie could reach $34 per share, representing an 888% gain from its current level, while Freddie’s value could rise to around $34 per share, giving it a 909% boost. However, Ackman acknowledges the risk involved and notes that many variables are still unclear.
Other investors have also taken notice of the potential move, with some betting on Fannie and Freddie’s exit from conservatorship. Buying junior preferred shares, which trade at a significant discount, could provide an alternative option for those willing to take on less upside but higher priority in the capital stack.
Source: https://www.fool.com/investing/2025/01/04/billionaire-investor-bill-ackman-thinks-2-stocks-c