Mortgage Giants Fannie & Freddie Eye Market Return in Possible IPO

In a move that is long overdue, JPMorgan Chase is floating the possibility of an IPO for Fannie Mae and Freddie Mac, Fox Business reports.

Resurrection for Mortgage Guarantors

Both Fannie Mae and Freddie Mac collapsed during the financial crisis as quasi-government entities responsible for insuring millions of mortgages that went bad.

Both Fannie Mae and Freddie Mac were bailed out by the government, which placed them in a conservatorship. The most draconian element of this arrangement was that all net worth of the entities would be constantly swept away and deposited in government coffers.

Over the past 10 years, however, Fannie Mae and Freddie Mac have become profitable again and maintained solid balance sheets. Numerous shareholders and hedge fund managers have said the government’s repeated sweeps are equivalent to robbery.

White Knight Bill Ackman

Outspoken legendary hedge fund manager Bill Ackman, who runs Pershing Square Capital, said as far back as 2015:

“The most illegal act of scale [the government has ever done]…if the US government can step in and take 100% of profits of a corporation forever, then we are in a Stalinist state and no private property is safe — and take your money out of every financial institution, put it into gold or bitcoin and just get the hell out because we’re done, maybe the clothes on your back, but other than that nothing is safe.”

Ackman has long advocated for Fannie Mae and Freddie Mac to be spun back out. He is long both stocks.

He also says now is the perfect time for it to happen.

“Completing one of the largest private capital raises in history necessitates favorable economic and financial market conditions like the current environment, with GDP growth at robust levels, unemployment at record lows, and national home prices and stock market indices at or near all-time highs. We believe that 2019 is the optimal time for action, ahead of the next presidential election in 2020, and that Treasury has a unique opportunity…

Source Link