The Plan
Bill Ackman has a different idea for Fannie Mae and Freddie Mac. Don't do an IPO right now.
The Trump administration has been discussing plans to list the mortgage giants' stocks for months. The CEOs of the six largest banks pitched the president to be part of the offering.
Ackman pitched a different approach on X Tuesday. The Treasury should cancel the government's senior preferred shares. Then exercise its warrants to buy nearly 80% of Fannie and Freddie common stock.
The companies could then move from over-the-counter trading to the New York Stock Exchange. This could happen as soon as this year, Ackman said.
The Valuation
This approach could create valuations close to $400 billion for the two companies. The government's stakes would be worth around $300 billion and could be sold off later.
Ackman also suggested lowering the current capital requirement from 4.5% of all guarantees.
The Conflict
Ackman's plan benefits common stock holders. His hedge fund Pershing Square is a large one of those.
The fund owns stakes in both Fannie Mae and Freddie Mac. Those shares have risen as the government considers privatization.
What Won't Work
Merging Fannie Mae and Freddie Mac into one company for a listing is off the table. That would require congressional approval, three sources said.
Creating a holding company would be simple for selling stakes. But government entities can't create vehicles for this strategy, one source said.
An extremely complex option is using an existing joint venture between the two as a listing vehicle.
The Bottom Line
Ackman is pushing for Fannie and Freddie to move to the NYSE this year by having Treasury exercise its warrants rather than do an IPO, a plan that would benefit his fund's existing stakes in both mortgage giants.
