Hedge-fund mogul Bill Ackman still believes the US government will keep mortgage giants Fannie Mae and Freddie Mac alive.
A new bipartisan Senate bill to wind down the mortgage giants had spooked investors and pummeled the stocks of both government-sponsored enterprises in recent weeks.
But they soared on Monday after Ackman revealed in a regulatory filing that he increased his exposure to Fannie and Freddie to 11.3 percent and 11.1 percent, respectively, via total-return swaps entered into March 28.
Fannie jumped 9.2 percent to $3.90, and Freddie rose 8.7 percent to close at $3.86.
Last month, both stocks tanked after a new bill to unwind them was co-sponsored by Tim Johnson (D-SD) and Mike Crapo (R-Idaho). Even after Monday’s gains, the stocks were still off about 15 percent for the month.
Ackman’s latest move — which increased his positions by about 15 percent each — appears to be a bet that the new bill, which is scheduled for an April 29 vote in the Senate Banking Committee, won’t become law.
The swaps expire at the end of April 2015.
Opposition to the bill has included Sen. Elizabeth Warren (D-Mass.), a consumer activist who recently suggested any plan to reform the two companies shouldn’t be done hastily, and Majority Leader Harry Reid (D-Nev.).
Ackman has taken a low public profile on his mortgage bets, preferring to let preferred shareholders like Bruce Berkowitz of Fairholme Capital Management do the heavy lifting.
Preferred shareholders have sued the government over its decision to return all profits to the government in defiance of an earlier agreement struck when Fannie and Freddie were in danger of collapse.
Ackman recently said he believes the government will lose that lawsuit and that shares of the two companies will increase tenfold over the next five years.
With the government owning 80 percent of both entities, that would give it a $300 billion payday.
“If they were liquidated, taxpayers would lose that much,” said Ackman, who is the largest shareholder outside the US government.
He has made about $400 million on the bet so far.