market folly

On Sunday, Bruce Berkowitz's firm Fairholme Capital released a statement indicating that they own $2.4 billion par value of Fannie Mae and Freddie Mac Preferred stock.

This isn't the first time we've seen a prominent investor involved in this type of play.  Back in 2011, Richard Perry of Perry Capital gave a presentation on going long GSE Junior Preferred securities.

Here's the full statement from Fairholme:


"FOR IMMEDIATE RELEASE

FAIRHOLME CAPITAL MANAGEMENT, L.L.C.

June 2, 2013

FAIRHOLME ISSUES STATEMENT ON FANNIE MAE AND FREDDIE MAC PREFERRED STOCK

Fairholme Capital Management announced that its clients, including mutual fund shareholders of The Fairholme  Fund (NASDAQ: FAIRX) and The Fairholme Allocation Fund (NASDAQ: FAAFX), own approximately $2.4  billion par value of Fannie Mae and Freddie Mac Preferred Stock and are ready to help with a restructuring that  accelerates the return of meaningful investment to the secondary mortgage market.

Privately-owned Fannie Mae and Freddie Mac are critical to our nation’s economic security, lowering the cost and  increasing the availability of homeownership.

There are no substitutes. Fannie and Freddie currently purchase or insure 6 out of every 10 home mortgages in  America. Today, they are stronger than ever – enabling the United States Treasury to rapidly recoup its temporary  emergency investments in both entities.

Taxpayer dollars expended by the government during a time of national crisis will be fully repaid. And equitable  treatment of taxpaying shareholders, including community banks, insurance companies, and mutual funds holding  Preferred Stock, must be restored with dividends reinstated. Repaying taxpayer investments, restructuring  government guarantees, and restoring shareholder property are not mutually exclusive. This is the American way.

The time to restructure Fannie and Freddie is upon us. Sustaining our nation’s economic recovery requires it.

On behalf of the hundreds of thousands of Fairholme Funds shareholders who helped to rebuild American  International Group, Bank of America, CIT Group, General Growth Properties, MBIA Inc., and others after the  Great Recession – we stand ready to do our part."

On an absolute dollar basis, this would mean that the combined preferred position would be Fairholme's second largest holding, only behind AIG (AIG), if these preferreds were trading at par value (they're not).  As noted in our Hedge Fund Wisdom newsletter two weeks ago, Bank of America (BAC) is Fairholme's second largest stake at just over $1.2 billion.

And embedded below is the press release PDF document:




You can download the .pdf here.

Fairholme has been active recently and we also highlighted when Berkowitz reduced his MBIA stake.