Bruce Berkowitz Talks Fannie/Freddie Preferreds, AIG & Sears

Fairholme Capital's Bruce Berkowitz owns preferred shares of both Fannie Mae and Freddie Mac and joined David Faber of CNBC to talk about the securities in a rare interview.


Fannie/Freddie Preferreds

We've highlighted before that Berkowitz is seeking dividends on these securities.  The fund manager notes that you can buy the securities at such discounts with the potential for them to trade at par again if they start paying dividends.

Fairholme likes to buy stakes in systemically important institutions and Berkowitz says Fannie & Freddie are just that.


Berkowitz Talks AIG

He also touched on his stake in AIG (AIG).  He said: "Investing is all about comparing what you give versus what you get.  Now when you look at today's stock price with AIG, it still sells significantly below liquidation value.  So at some point the stock market price will meet the book value of AIG."  

He says book value is around $60 per share currently and he expects liquidation value will double in a few years. 

So when will he sell?  He said he'll have to consider the idea of selling in the event that shares eventually trade at book value & higher. 

He also addressed his large position size, noting that Benjamin Graham once distributed shares of GEICO rather than selling when the position size became too large for his fund.  So it sounds like Berkowitz is considering this option as well for the future.


Talks Sears (SHLD)

Berkowitz thinks Eddie Lampert has been doing a good job and he notes he's in the minority in that opinion.  He compares Sears to Simon Properties (SPG) and it's clear Berkowitz views as SHLD as a real estate play.


Embedded below is the video of Berkowitz's interview:



For more on this manager, you can check out Fairholme's latest portfolio in the new issue of our premium newsletter.

Bruce Berkowitz's Fairholme Discloses $2.4 billion Par Value Stake in Fannie Mae & Freddie Mac Preferred

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.