Ackman Advises On, Bets Against Fannie, Freddie

Jul 15 2008 | 11:03am ET

Activist hedge fund manager William Ackman is taking on one of the biggest turnaround jobs imaginable. The Pershing Square Capital Management chief said he has presented a plan to restructure mortgage giants Fannie Mae and Freddie Mac to Beltway bigwigs, including at the U.S. Treasury Dept., Federal Reserve and Senate Finance Committee.

Ackman told Bloomberg News that, under his plan, “no taxpayer money is used, the hierarchy of claims is respected and no one is being cheated.”

Fannie Mae shareholders might disagree. Ackman has proposed that Fannie raise about $86 billion by giving its holders of some $750 billion in senior unsecured notes debt from a new company at 90 cents on the dollar, with the rest in equity. Owners of the firm’s $11 billion in junior debt would get warrants, but both common and preferred shareholders would get nothing.

“The good news is that Fannie Mae has all the capital that it needs,” Ackman, who made clear he opposes plans for the federal government to provide capital to either firm, told Bloomberg. “It just has the capital in the wrong form, with too much debt and not enough equity.”

But don’t expect Pershing Square to be buying any equity in the firms any time soon. Ackman said his fund has been shorting both stocks since last week, and that he expects them to continue to fall.

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