Bill Ackman Sees “Large Asymmetric Upside” for Fannie Mae and Freddie Mac (FMCC)

Billionaire hedge fund manager Bill Ackman sees a lot of potential in Fannie Mae (FNMA) and Freddie Mac (FMCC) common shares after saying that they have “large asymmetric upside” at current prices. Ackman, who has held shares in both entities for over a decade through Pershing Square, believes that there is now a “credible path” to their exit from federal conservatorship within the next two years due to President-elect Trump’s upcoming term.

Ackman claims their exit from conservatorship could generate over $300 billion in additional profits for the U.S. government, on top of the $301 billion already paid to the Treasury, while removing $8 trillion in liabilities from the government’s balance sheet. If the entities were to go public through IPOs, Ackman estimates they would need to raise $30 billion to meet capital requirements, with shares potentially priced around $31. In addition, he valued each company at approximately $34 per share by 2026.

In Federal Conservatorship Since the 2008 Financial Crisis

Both entities have been in federal conservatorship since the 2008 financial crisis, which refers to the legal and financial oversight mechanism put in place by the U.S. government. This is because in 2008, both entities were facing insolvency due to mounting losses from risky subprime loans.

To prevent their collapse and stabilize the housing market, the Federal Housing Finance Agency placed them under conservatorship. This move meant that the government effectively took control of their operations, with the Treasury providing financial support in exchange for preferred shares and the majority of their profits.

Is FMCC or FNMA the Better Stock?

Currently, both FNMA and FMCC stocks have Hold ratings from the lone analyst covering them in the past three months: five-star analyst Bose George. However, George has higher expectations for FMCC stock since his price target of $4 implies over 20% upside potential.