Icahn wants big profits from Fannie and Freddie

The legendary investor takes a $50 million position in the mortgage giants.

By MSN Money Partner Jun 4, 2014 4:27PM
Fannie Mae headquarters in Washington D.C. (© Andrew Harrer/Bloomberg via Getty Images)By Nathan Vardi, Forbes

Carl Icahn appears to have joined the hedge fund party that is trying to make a fortune off of the resuscitation of mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), the government-sponsored enterprises that were bailed out during the financial crisis and placed into conservatorship.


Icahn took a $50 million position in Fannie Mae and Feddie Mac in March by buying common stock from Bruce Berkowitz's Fairholme Funds


Icahn bought 6.8 million shares of Fannie Mae for $4.03 per share and 5.7 million shares of Freddie Mac for $4.04 per share, according to a court document that was reported by The Wall Street Journal and CNBC. 


Berkowitz, who bet early and big on Fannie and Freddie, not only gets to book a nice gain on the shares he sold to Icahn, but he potentially also gets an ally in his effort to make outsized gains from his continued large position in both the common and preferred shares of the GSEs.


Disclosure of Icahn's bet on one of the most politically explosive and controversial investments going comes in the aftermath of reports about a federal insider-trading probe that is looking at Icahn, golfer Phil Mickelson, and the prominent sports better William Walters. All three individuals have denied any wrong doing and the facts surrounding the federal investigation on the surface suggest it could go nowhere. 


Icahn did not know about the federal insider trading investigation, which is looking at trading in Clorox (CLX) in 2011, when he bought shares of Fannie Mae and Freddie Mac from Berkowitz.


Nevertheless, Icahn, the 78-year-old dean of activist investors, is joining what has essentially become a huge activist play against the federal government. Ironically, his new teammate is Bill Ackman, the billionaire whose hedge fund has taken a large position in the common shares of Fannie Mae and Freddie Mac. 


Ackman and Icahn have feuded over the years, culminating in a huge confrontation over Herbalife (HLF) that is now deep into its second year. The two activist investors did, however, recently patch up their personal relationship.


Some prominent money managers who are heavily invested in the preferred shares of Fannie and Freddie, like Berkowitz and Richard Perry, have sued the federal government, alleging it acted illegally by getting Fannie Mae and Freddie Mac to pay the government nearly all of its huge profits in the form of dividends. 


The Obama Administration has said it wants to wind down Fannie Mae and Freddie Mac as part of its effort to reform the mortgage market, which remains utterly dependent on the GSEs. 


Berkowitz has been the most vocal participant in this activist campaign, doing television interviews and releasing slide presentations with his buyout proposals. Ackman, on the other hand, has departed from his normal style and remained relatively quiet in his approach.


Shares of Fannie Mae fell by 2.8 percent to $4.52 and shares of Freddie Mac fell by 3.3 percent to $4.44  in Wednesday trading.


More from Forbes

4Comments
Jun 4, 2014 8:04PM
avatar
Most people who actually know what Carl Icahn does-- want the pariah GONE. What a worthless useless vile greedy bastard. GET THIS LOSER GONE. 
Jun 5, 2014 6:31AM
avatar
Carl Icahn-- actively pushing America to eliminate his kind forever. What a sick weirdo. 
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