Key Takeaways
- • Bill Ackman proposes a three-phase plan to privatize Fannie Mae and Freddie Mac without an immediate IPO, requiring Treasury to forgive $193 billion in senior preferred stock draws accumulated since 2008 conservatorship.
- • KBW analysts express skepticism that Treasury would forgive the senior preferred investments, and warn that even if forgiveness occurs, uncertain capital requirements would create valuation headwinds and limit share appreciation potential.
- • Ackman's agreement letter proposal aims to address institutional investor concerns about a potential Treasury conversion of senior preferred stock into common equity, which Deutsche Bank estimates has a 20% probability and would massively dilute shareholders.
- • Ackman argues the $193 billion forgiveness request is justified because Fannie Mae and Freddie Mac have paid $310 billion in dividends to the government since entering conservatorship, making the net cost to Treasury negative.
- • Market participants remain divided on privatization mechanics: KBW analysts believe institutional investors expect a preferred-to-common conversion upon privatization, while Ackman contends such conversion would trigger litigation and delay the process, making his alternative approach preferable.
Summary
Bill Ackman, founder of Pershing Square Capital Management, outlined a three-phase privatization plan for Fannie Mae and Freddie Mac during a live social media presentation on Tuesday, November 19, 2025. Rather than pursuing an immediate stock offering, which Ackman stated is not "feasible," his proposal centers on securing an agreement letter between the U.S. Department of the Treasury and the Federal Housing Finance Agency (FHFA) to forgive $193 billion in senior preferred stock drawn by the government-sponsored enterprises (GSEs) since entering conservatorship in 2008.
Ackman's plan includes Treasury's purchase of 79.9 percent of the companies' common stock and near-immediate relisting on the New York Stock Exchange. The hedge fund manager argues that the $193 billion forgiveness request is economically justified because Fannie Mae and Freddie Mac have paid $310 billion in dividends to the government over the conservatorship period, resulting in a net positive return to Treasury.
However, analysts at Keefe, Bruyette and Woods (KBW) expressed significant skepticism regarding both the political feasibility of Treasury forgiveness and the ultimate valuation implications. KBW analysts Bose George and Frankie Labetti noted in a Tuesday report that "while shares are likely to re-rate up sharply if Treasury forgives the senior preferred stock, there will still be an overhang related to uncertain capital levels, which drive return on equity." This uncertainty around future capital requirements would constrain shareholder returns even in a successful privatization scenario.
The proposal directly addresses a major institutional investor concern: the risk that the Trump administration could unilaterally convert the GSEs' senior preferred stock into common stock, creating massive shareholder dilution. Deutsche Bank assigned a 20% probability to such a conversion. Ackman argues that an executed agreement letter would provide legal certainty and prevent this outcome. KBW analysts concur that a conversion could trigger litigation and delay privatization, though they view institutional investors as already expecting such conversion in any privatization scenario, suggesting the legal certainty Ackman seeks may not significantly alter market expectations or valuations.
Ackman's plan includes Treasury's purchase of 79.9 percent of the companies' common stock and near-immediate relisting on the New York Stock Exchange. The hedge fund manager argues that the $193 billion forgiveness request is economically justified because Fannie Mae and Freddie Mac have paid $310 billion in dividends to the government over the conservatorship period, resulting in a net positive return to Treasury.
However, analysts at Keefe, Bruyette and Woods (KBW) expressed significant skepticism regarding both the political feasibility of Treasury forgiveness and the ultimate valuation implications. KBW analysts Bose George and Frankie Labetti noted in a Tuesday report that "while shares are likely to re-rate up sharply if Treasury forgives the senior preferred stock, there will still be an overhang related to uncertain capital levels, which drive return on equity." This uncertainty around future capital requirements would constrain shareholder returns even in a successful privatization scenario.
The proposal directly addresses a major institutional investor concern: the risk that the Trump administration could unilaterally convert the GSEs' senior preferred stock into common stock, creating massive shareholder dilution. Deutsche Bank assigned a 20% probability to such a conversion. Ackman argues that an executed agreement letter would provide legal certainty and prevent this outcome. KBW analysts concur that a conversion could trigger litigation and delay privatization, though they view institutional investors as already expecting such conversion in any privatization scenario, suggesting the legal certainty Ackman seeks may not significantly alter market expectations or valuations.
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