Fannie Mae & Freddie Mac FNMA / FMCC
Fannie and Freddie — not liquidated — should be reformed into higher-capitalized mortgage guarantors; at 60–100bps g-fees the GSEs are worth $23–$47/share versus $3.98 today.
Thesis
Pershing Square argues the best housing-finance reform is to reform — not liquidate — Fannie Mae and Freddie Mac, which together guarantee ~$5 trillion of U.S. mortgages and generated ~$39bn of 2013 pre-tax earnings while operating under FHFA conservatorship. Congressional proposals to wind down the GSEs and rebuild the system from scratch are impractical: private capital is pro-cyclical, IPO markets cannot raise the required capital, and the system has no 80-year track record of market acceptance. Ackman's alternative is a four-part fix — raise the equity ratio to 2.5%, eliminate the Fixed-Income Arbitrage business, ban subprime/Alt-A guarantees, and upgrade governance — letting the GSEs rebuild capital from retained earnings. At 60–100bps g-fees and 14–16x P/E, the common is worth $23–$47 (versus $3.98), while Treasury's 79.9% warrants and tax revenue deliver $240–$420bn of incremental value to taxpayers.
SCQA
Fannie Mae and Freddie Mac guarantee ~$5 trillion of U.S. mortgages — ~60% of annual originations — and have operated under FHFA conservatorship since September 2008, with 100% of earnings swept to Treasury.
Washington's favored fix — liquidate the GSEs and replace them with an untested private system — is impractical: private capital is pro-cyclical, IPO markets are too small, and the proposed system still needs an explicit government guarantee.
Reform, don't liquidate: raise equity capital to 2.5%, wind down the Fixed-Income Arbitrage book to $100bn, ban subprime/Alt-A guarantees, upgrade governance and oversight, and let retained earnings rebuild capital over 7–10 years.
A reformed GSE earns $17–$29bn, implying $23–$47 per share (6–12x today's $3.98) and delivering $444–$621bn total to taxpayers — including $240–$420bn of incremental value versus the $187bn preferred stock investment.
The three reasons
- 1
Liquidating the GSEs is impractical — private capital is pro-cyclical and cannot replace $5tn of guarantees
- 2
Reformed GSEs earn $17–$29bn and are worth $23–$47/share vs. $3.98 today (6–12x upside)
- 3
Reform delivers $240–$420bn of incremental value to taxpayers versus wind-down proposals
Primary demands
- Reform — not liquidate — Fannie Mae and Freddie Mac
- Raise GSE equity capital to a 2.5% ratio via retained earnings (~$183bn incremental equity)
- Wind down the Fixed-Income Arbitrage (FIA) portfolio; cap warehouse loans at $100bn
- Ban future guarantees of subprime and Alt-A loans
- Subject the GSEs to substantially increased regulatory oversight, stress tests, and improved compensation/governance
- Treasury should convert its remaining ~$65bn preferred into common (AIG/Citi precedent) or allow the GSEs to raise new capital
KPIs cited
Pattern membership
Precedents cited
- Treasury conversion of preferred stock in AIG and Citi
- Too-big-to-fail bank reform post-crisis (TARP equity injections, Basel III capital increases)
Composition what's on the 111 slides
Slide gallery ·
Notes
Ira Sohn 2014 presentation by Bill Ackman. Classic Pershing Square institutional deck: blue/red/green color-coded section headers, consistent chart treatment, functional data-viz. Argument arc: History of GSEs → Guarantee business economics → Why private-sector replacement fails → Reform blueprint → Illustrative valuation → Taxpayer benefit. Unusual posture: Pershing is long the common but the 'opponent' is U.S. Treasury/Congress/FHFA policy (the Third Amendment Net Worth Sweep and wind-down proposals) rather than corporate management. No traditional CEO villain; uses supportive ally quotes (Sen. Pat Toomey, CUNA/ICBA/NAFCU) instead of management contradictions. The scorecard and capital-requirements comparison tables provide before/after and peer benchmarking. Pershing disclosed holdings in FNMA/FMCC in the disclaimer but did not state a specific ownership percentage in the deck.