Hedge funds spent more than five years suing the US government, trying to extract some value from their investments in the nationalized mortgage giants Fannie Mae and Freddie Mac, but were hit by the Supreme Court on Wednesday.
Shares Fannie Mae and Freddie Mac After the ruling dismissed some investors’ allegations that the US Treasury Department illegally withdrew more than $100 billion in profits from the two companies, the stock price plummeted by more than one-third.
Fannie Mae and Freddie Mac provide guarantees for most mortgage loans in the United States, and they have been under government supervision since they received bailouts during the real estate market crash in 2008.
Fannie Mae and Freddie Mac’s preferred stocks were hit harder by the ruling, with the most traded stocks falling by more than 60%.
The Supreme Court judge dismissed the following allegations: The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, conducted a “profit sweep” in 2012 to recover the funds used by taxpayers to rescue the two companies, thus surpassing federal law. permission. .
The judge did rule that shareholders can continue to claim that the structure of the FHFA is unconstitutional because the directors of the agency do not have sufficient responsibility to the president.
They sent the constitutional requirements back to the lower courts to decide what kind of relief (if any) shareholders should receive.
The director of the FHFA is nominated by the President and confirmed by the Senate. The term of office is usually five years. He or she can only be removed “for some reason.”
Hedge fund managers including Bill Ackman and John Paulson have been betting that if these companies are reprivatized, Fannie Mae and Freddie Mac’s stocks and preferred stocks In the end, it will have a certain value, especially if the Ministry of Finance can return part of the profits it has harvested during the storage period.
In the latest annual report of his hedge fund Pershing Square, Ackerman wrote that the positive ruling of the Supreme Court would be a “game changer” for his investment.
But he added: “Regardless of the court’s decision, we still believe that we are in [Fannie and Freddie] Because they play a recognized and irreplaceable role in the US housing financial system, they are a valuable and permanent choice for them to eventually withdraw from the regulatory agency. “
Additional reporting by Eric Pratt