Hedge fund manager offers plan for Fannie, Freddie

Discussion in 'Wall St. News' started by archon, Jul 16, 2008.

  1. archon



    Hedge fund manager offers plan for Fannie, Freddie

    * Reuters
    * , Tuesday July 15 2008

    (New throughout with comments from Ackman)

    By Svea Herbst-Bayliss and Herbert Lash

    BOSTON/NEW YORK, July 15 (Reuters) - Hedge fund manager William Ackman laid out a plan on Tuesday to restructure mortgage finance companies Fannie Mae and Freddie Mac as more investors expressed doubts about the government's proposal to prop up the battered institutions.
    Ackman, who runs New York based hedge fund Pershing Square Capital and is known for betting big against bond insurers, said his plan would effectively recapitalize the two companies, leaving them with a healthier mix of equity and debt.
    "It will take a few days to percolate, but someone is going to say this is a good idea, I think," Ackman told Reuters after announcing the plan, complete with slides on cable television CNBC this morning.
    "I think I have something they are going to like," Ackman said, noting his plan would save U.S. taxpayers a lot of money.
    The two companies hold or own about $5.2 trillion in mortgages, or almost half of all mortgages in the United States.
    The fund manager, who is also known for his meticulous research, said he had already discussed a draft of the plan with senior government officials and will now begin calling legislators to speak about it in detail.
    Ackman warned it would be a mistake for the U.S. government to invest in the equity of the companies. He is betting against their stock and junior debt, but he said saving them would be good, both for the long side of his portfolio and for the country.
    Specifically, Ackman said the restructuring of Fannie Mae would involve the government offering to buy its $750 billion in senior unsecured debt at 90 cents on the dollar and giving debt holders 10 cents of new common stock in the restructured company....

    full article here: