Fannie Mae +23.8% over a 28-month holding period
Catalyst Type: Restructuring
Fannie Mae is a GSC which essentially securitises mortgages that were issued by banks in the United States.
During the financial crisis of 2009, Fannie Mae and Freddie Mac were both nationalised on life support in order to save them from bankruptcy. In 2012, during the depths of the European debt crisis, the 2 GSCs were fully nationalised in a controversial move known as the ‘net worth’ sweep. Since then, numerous investors have filed lawsuits claiming the net worth sweep was illegal, as the losses were largely due to accounting mark to market positions, and the GSCs were well able to stand on their own.
The complicated litigation process led to large fluctuations in the stock price, with the stock price remaining depressed for a prolonged period of time under the Obama administration. Trump’s election win and rhetoric about re-capitalising the GSCs, sparked a rally in the common stock and Fannie Mae consequently.
We used the opportunity to cash out of a position we took in September 2014. Whilst the potential upside in Fannie Mae common stock is still large, we right now remain on the side lines for the stock until more clarity on the issue is given by the Trump administration.