Berkowitz: On Fannie Mae “I expect further gains from any Trump Administration-led initiative”
- Fairholme fund 2017 annual letter to investors (Funds2017AnnualLetter)
- Fairholme fund 2017 annual report (Fairx_Funds2017Annual)
Fannie Mae and Freddie Mac:
Fannie and Freddie have helped tens of millions of Americans secure affordable, predictable mortgages to help achieve the dream of financial independence while operating under the conservatorship of the Federal Housing Finance Agency (“FHFA”). Since 2012, Fannie and Freddie have shipped the entirety of their profits—$275 billion and counting—to the U.S. Treasury. You’ve heard this all before. The point is, with hundreds of billions in profits flowing to the federal government, there is no doubt about Fannie and Freddie’s earnings power or their ability to serve the public and survive. That is why reform is coming. In a letter to the Senate this month, FHFA Director Mel Watt re-emphasized that “ongoing conservatorship is not sustainable and needs to end.” He believes Fannie and Freddie should be public utilities with regulated rates of return. We agree. Treasury Secretary Steve Mnuchin tells us 2018 is the year for Fannie and Freddie reform. “We need to fix Fannie and Freddie,” Mnuchin said in September. “[…] we’re going to fix [them] and when we fix [them] we want to make sure we never put the taxpayers at risk.” We also agree Fannie and Freddie must be returned to their private owners. So far, the Funds have realized $140 million of gains from Fannie and Freddie investments over the past four years. I would expect further gains from any Trump Administration-led initiative.
And
After eight long years of cover-ups, bald-faced lies, and judicial obstruction, the government has finally released thousands of documents demonstrating that the Obama Administration created false pretenses to unlawfully siphon tens of billions of corporate cash from Fannie Mae and Freddie Mac. These documents clearly demonstrate that senior government officials knew the GSEs were on the verge of sustained profitability and took actions to usurp all of those profits. Indeed, the documents reveal that these officials lied to the public and perjured themselves in federal courts. The so-called “Net Worth Sweep” was unnecessary to prevent a “downward spiral.” Put simply, we now have unambiguous evidence that the Obama varsity team knew what their statutory authorities were, willfully exceeded those authorities to steal billions of dollars from investors, and subsequently engaged in a cover-up to hide their wrongdoing.
When you follow the cash, it’s easy to see that Fannie and Freddie have generated hundreds of billions in profits, taxes, and consumer savings.
Each held tens of billions of tangible value and maintained tens of billions in earnings power – even at the worst point of The Great Recession.
Each had the wherewithal to pay all bills and pursue its stated mission of providing liquidity when all others cannot.
Federal agencies continue to defend contrived accounting gimmicks by arguing that they followed the law and, notwithstanding, they are above it. As more and more documents are released, the Department of Justice will see that the actions undertaken by former officials undermine their defenses and long-established laws. Fannie and Freddie can safely return to their role of insuring the uniquely American housing finance system against catastrophic risk with private capital. There is a proven blueprint to succeed, and we hope to successfully resolve this matter before reaching the Supreme Court of the United States.
After all, capital markets are based on the sanctity of contracts – the original buyers’ and sellers’ expectations and rights travel with a contract no matter who holds it. When this saga ends, we expect contracts to be honored and substantial value for all stakeholders.
- Fairholme Fund’s Largest Sales of 4th Quarter – Bruce has sold out large shares of GSEs, was he profit taken or he sensed that something bad will happen soon? I need to be aware of the development.
Fairholme Fund (Trades, Portfolio), led by guru Bruce Berkowitz, sold shares in the following stocks during the fourth quarter.
The stake of Fannie Mae Pfd Shs Ser S (FNMAS) was reduced by 23.01% with an impact of -6.87% on the portfolio.
The Federal Home Loan Mortgage Corp 8 3/8 (FMCKJ)’s position was cut by 31.07% with an impact of -5.97% on the portfolio.
The holding of Fannie Mae Var Rate Non-Cum Pfd (FNMFN) was almost closed after a reduction of 85.19% and an impact of -1.63% on the portfolio.
The Federal Home Loan Mortgage Corp 5.57% (FMCKM)’s stake was trimmed by 78.25%. The transaction had an impact of -1.56% on the portfolio.
The guru closed his holding of Federal Home Loan Mortgage Corp Variab (FMCCM). The trade had an impact of -1.04% on the portfolio.
The guru reduced his stake in Fannie Mae Pfd Shs Ser P (FNMAH) by 69.54%, impacting the portfolio by -0.88%.
The fund reduced his holding of The St. Joe Co. (JOE) by 1.75%, impacting the portfolio by -0.55%.
The company operates residential real estate and commercial real estate properties and resorts. It has a market cap of $1.21 billion and an enterprise value of $1.14 billion.
GuruFocus gives the company a profitability and growth rating of 4 out of 10. The return on equity (ROE) of 3.76% and return on assets (ROA) of 2.40% are underperforming 65% of the companies in the Global Real Estate – General industry. Its financial strength is rated 5 out of 10. The cash-debt ratio of 1.34 is above the industry median of 0.35.
Bruce Berkowitz (Trades, Portfolio) is the largest shareholder of the company among the gurus with 41.8% of outstanding shares followed by Fairholme Fund (Trades, Portfolio) with 34.27%, Charles Brandes (Trades, Portfolio) with 2.76% and Chuck Royce (Trades, Portfolio) with 0.43%.
The stake of Sears Holdings Corp. (SHLD) was reduced by 6.63%. The trade had an impact of -0.54% on the portfolio.
Sears is a retailer that integrates digital and physical shopping experiences for consumers. It has a market cap of $252.89 billion and an enterprise value of $4.7 billion.
GuruFocus gives the company a profitability and growth rating of 2 out of 10. The ROE of -12.78% and ROA of -30.80% are underperforming 92% of the companies in the Global Department Stores industry. Its financial strength is rated 4 out of 10. The cash-debt ratio of 0.04 is below the industry median of 0.99.
The largest shareholder of the company among the gurus is ESL Partners LP with 59.54% of outstanding shares followed by Bruce Berkowitz with 19.79% and Edward Lampert (Trades, Portfolio) with 19.08%.
The Seritage Growth Properties Class A (SRG)’s position was cut by 1.75%. The transaction had an impact of -0.13% on the portfolio.
Seritage is a self-administered, self-managed REIT that operates in the real estate property business through its investment in Seritage Growth Properties LP. The company has a market cap of $2.29 billion and an enterprise value of $3.98 billion.
GuruFocus gives the company a profitability and growth rating of 5 out of 10. The ROE of -5.54% and ROA of -1.67% are underperforming 96% of the companies in the Global REIT – Retail industry. Its financial strength is rated 3 out of 10. The cash-debt ratio of 0.08 is above the industry median of 0.06.
Berkowitz is the largest shareholder of the company among the gurus with 6.72% of outstanding shares followed by Hotchkis & Wiley with 5.06%.
The guru reduced his stake in Fannie Mae Variable Rate NonCum (FNMAO) by 50.04%, impacting the portfolio by -0.09%.
The guru exited his Sears Canada Inc. (SCC.Canada) holding, impacting the portfolio by -0.06%.
The guru sold out his holding of Sears Hometown and Outlet Stores Inc. (SHOS). The trade had an impact of -0.04% on the portfolio.
The pharmaceutical company has a market cap of $52.22 million and an enterprise value of $157.43 million.
GuruFocus gives the company a profitability and growth rating of 4 out of 10. The ROE of -42.54% and ROA of -22.76% are underperforming 98% of the companies in the Global Department Stores industry. Financial strength is rated 5 out of 10. The cash-debt ratio of 0.12 is below the industry median of 0.99.
The largest shareholder of the company among the gurus is ESL Partners LP with 58.35% of outstanding shares followed by Lampert with 21.02%, Francis Chou (Trades, Portfolio) with 5.82% and Jim Simons (Trades, Portfolio) with 1.63%.
