David Abrams Waiting For Obama To Leave Office For Fannie, Freddie Payout

The Obama administration isn’t likely to give hedge funds much love, Abrams says, as a waiting game over Fannie & Freddie ensues
Posted By: Mark MelinPosted date: April 15, 2015 10:40:23 PMIn: Seeking Alpha, Top StoriesNo Comments
As the illusive hedge fund manager David Abrams considers his investment in Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), placing his bet for just pennies on the dollar almost five year ago, part of his investment thesis depends on a change in the family residing in the White House, which will happen in less than two years.

David Abrams

Abrams: Hell will freeze over before Obama gives up the ghost
When asked if hell would freeze over before the Obama administration allowed the hedge fund community to cash a check from Fannie or Freddie, Abrams told the assembled financial insiders at New York’s Plaza hotel for James Grant’s Spring Conference “That sounds like a reasonable bet.”

“I think that someday there (will be) interesting optionality because some administration – not the Obama administration – is going to decide that having the linchpins of the U.S. mortgage market in bankruptcy… is not a clever idea (for government to own the securities),” the founder of the $8 billion hedge fund Abrams Capital said, noting the payoff point. “When they do, they will have to deal with the junior securities.”

When he made his initial investment in 2010, it was done during a drawdown in the stock as Abrams was sifting through the bones of what had become an unpopular holding. Abrams bought the stock on the news that it was being delisted – as many long-time investors were throwing in the towel.

Abrams: Picking a stock out of a graveyard
Perhaps thinking like Seth Klarman, the legendary value investor who spawned this “Baupost cub,” Abrams liked the value investing reasoning. With the stock close to zero, basic risk / reward analysis likely revealed the investment had much more room to the upside and a limited downside risk.

“One of the things I’ve learned over the years is that with a lot of securities, you have to buy them when nobody wants them,” he said. “I have no idea whether there will be anything in the next 12 to 24 months. This thing could end up being a complete zero.”

The stock has a significant amount of float, but not as much liquidity relative to the ownership. “Even Fannie and Freddie, where there are many billions of face of the preferreds (stock) and a decent amount of common (stock), it only trades when there is news, and it only trades down when there is bad news.”

After trading near zero from 2010 to 2013, FNMA traded consistently at $4 per share in 2014 and closed trading yesterday at $2.80.

http://www.valuewalk.com/2015/04/david-abrams-fannie-mae/