From Financialexpress · Anjana PV · · 2m
Michael Burry shifts Fannie Mae, Freddie Mac bets
Burry moves from common to junior preferred shares as $388B Treasury claim threatens shareholder value.
In brief
Burry moves from common to junior preferred shares as $388B Treasury claim threatens shareholder value. Michael Burry shifts Fannie Mae and Freddie Mac investments to junior preferred shares after warning of potential 90% dilution from Treasury's $388 billion claim. Originally reported by Financialexpress.
Burry changes Fannie/Freddie investment strategy
Michael Burry sold common stock and bought junior preferred shares in Fannie Mae and Freddie Mac.
“Michael Burry swaps fannie/freddie common stock for junior preferred shares”
Treasury's $388 billion claim concerns shareholders
Burry warns Treasury's $388 billion senior preferred claim could dilute common shareholders by 90%.
“the government's senior preferred claim has grown to around 388 billion”
Fannie and Freddie's role in housing market
Fannie Mae and Freddie Mac help lenders provide home loans by buying mortgages and packaging them into securities.
“they do not generally lend directly to homebuyers”
Government conservatorship since 2008
Both companies remain under government control since the 2008 financial crisis.
“the us government stepped in to prevent their collapse”
Burry's junior preferred shares strategy
Burry believes junior preferred shares offer better risk-reward than common shares if Treasury converts holdings.
“junior preferred shares could benefit if dividend payments resume”
Stock chart pattern shows risk
Burry describes a 'giant head-and-shoulders-and-elbows top' pattern indicating potential share price collapse.
“this is his description of a chart pattern that he believes shows a potential collapse”
Treasury's liquidation preference
The Treasury's senior preferred shares have a liquidation preference of $388 billion.
“the government's senior preferred claim has grown to around 388 billion”
Dilution risk for shareholders
Burry warns common shareholders could lose most investment if Treasury converts preferred shares to common stock.
“the dilution percentage could increase further as the treasury's liquidation preference grows”
Preferred shares ranking in capital structure
Junior preferred shares rank below senior preferred but ahead of common shares in dividend payouts and liquidation claims.
“they rank ahead of common stock in terms of dividend payouts and liquidation claims”
Stock prices after Trump election
Fannie and Freddie shares retraced gains since Trump's election and formed a head-and-shoulders pattern.
“they put in a giant head-and-shoulders-and-elbows top for added emphasis”
Political decisions impact share value
Burry argues government decisions on conservatorship and Treasury claims affect shareholder value.
“the companies' future also depends heavily on government policy”
Historical comparison to 1981
Historical analysis shows Fannie Mae's financial position in 1981 raised concerns about management accountability.
“the companies' importance to the national housing market can make it difficult for critics to challenge them”
What investors should watch next
Investors should monitor government decisions on conservatorship and Treasury's preferred shares.
“the central question is whether the us government will make changes that allow fannie mae and freddie mac to operate independently”
Burry's warning about shareholder value
Burry warns common shareholders could lose most investment if Treasury converts preferred shares to common stock.
“the dilution could reach at least 90 percent”
What happens next
Government decisions on conservatorship and Treasury claims will determine shareholder value for Fannie and Freddie.
“the treasury's senior preferred claim could dilute common shareholders by 90 percent”
Here's the gist
Michael Burry shifts Fannie Mae and Freddie Mac investments to junior preferred shares after warning of potential 90% dilution from Treasury's $388 billion claim.
