NEW YORK Fund manager Bruce Berkowitz's Fairholme Capital Management is making a big bet on Fannie Mae and Freddie Mac preferred shares, CNBC reported on Wednesday.
The cable business network said the mutual fund firm has taken a roughly $500 million stake in the preferred shares of the mortgage firms that have been operated by the federal government in a conservatorship since September 2008.
Berkowitz, who was named Morningstar's domestic-stock fund manager of the decade in 2010 and is best known for betting on financial stocks, was not immediately available for comment on the report.
Fairholme is the latest among several investment firms and hedge funds that have been accumulating either the common or preferred stock of Fannie and Freddie in the hopes those securities will rise in value in a government restructuring of the mortgage firms.
Much of the buying by money managers is based on speculation since federal officials have not said what a final restructuring might look like. Talks about restructuring are preliminary, and have been more about phasing out the firms, which would ultimately wipe out the value of those securities.
For now any dividends paid on the preferred stock go to the U.S. Treasury. In the midst of the financial crisis, the two firms received $187 billion in federal support.
Until Wednesday's roughly 30 percent pullback in the common shares of Fannie Mae and Freddie Mac, shares of the companies had risen for seven straight days. Investors have also sought several issues of their junior preferred shares in the past few weeks, including two series sold in December 2007.
Fannie Mae preferred Series S shares traded actively in the past few weeks, rising from a 2012 low of 46 cents on August 17 to $6.65 on Wednesday. Freddie Mac's preferred series Z shares have risen from a 2012 low of 42 cents on August 17 to $6.70 on Wednesday.
(Reporting by Sam Forgione; additional reporting by Aaron Pressman; Editing by Richard Chang)