By Margaret Chadbourn and Tanya Agrawal
March 3 Mutual fund manager Bruce Berkowitz,
founder of Fairholme Capital Management, is pressing the boards
of the mortgage-finance giants Fannie Mae and Freddie
Mac to let investors have a bigger say in how the
companies are run.
Berkowitz, whose firm filed a lawsuit against the U.S.
government last July over changes made in 2012 to the terms of
the taypayer-funded bailouts of Fannie Mae and Freddie Mac, on
Monday publicly released a letter that he sent to the boards of
In the letter, dated Feb. 28., Berkowitz said that Fannie
Mae and Freddie Mac must "now retain earnings to build a
fortress-like balance sheet and keep promises made to millions
of homeowners and savers."
In the lawsuit filed last year, Fairholme, which is a
shareholder of both companies, claims that changes by the U.S.
government 2012 to the terms of the bailouts of Fannie Mae and
Freddie Mac were illegal and cost investors billions of dollars.
Those changes require the companies to sweep all their
profits into the government's coffers. Previously, they were
required simply to pay a 10 percent dividend.
A group of investors filed a lawsuit similar to Fairholme's,
also in July.
The government-controlled companies, which were bailed out
during the height of the financial crisis in 2008, have received
nearly $187.5 billion in taxpayer aid. They have since returned
to profitability, and by the end of March will have paid $202.9
billion in dividends to the U.S. Treasury.
Their new-found health has prompted investors to snap up
their stock in a bet the companies will be made private in the
future. In recent days, shares of their preferred stock have
traded near the highest levels since the 2008 bailout.
The companies' regulator, the Federal Housing Finance
Agency, which is responsible for the bailout terms, declined to
comment on Berkowitz's letter.
Fannie Mae Chairman Philip Laskawy said in a statement: "I
am confident that the board is doing the job it has been given.
FHFA has retained certain authorities for its exclusive
determination and control, as provided by federal statute,
including all decisions relating to the declaration and payment
Freddie Mac declined to comment.
Fairholme also wants the companies to relist on the New York
Stock Exchange and hold annual shareholder meetings. "Frankly,
it has been a while," Berkowitz said in the letter.
The companies, which own or guarantee 60 percent of all U.S.
home loans, have not held annual shareholder meetings since
The fund also wants the companies to hire advisers who are
independent of the FHFA.
Fairholme said the companies believe that they don't have to
follow basic rules of corporate governance unless specifically
directed to do so by the FHFA.
As of Dec. 31, Fairholme had a 2.24 percent stake in Fannie
Mae and a 2.98 percent stake in Freddie Mac, according to
Thomson Reuters data.