Fannie and Freddie Investors Play it Safe After AIG Ruling

first_img Fannie Mae and Freddie Mac investors made some careful moves after Monday’s court decision between American International Group (AIG) and the GSEs. The share of the GSE’s stock went up about 9 percent before dropping back down, however, Monday’s ruling may not necessarily mean good news for shareholders, according to multiple media reports.MarketWatch analysts said that Judge Thomas C. Wheeler of the U.S. Court of Federal Claims ruled that the U.S. government ran afoul of the law when rescuing American International Group in 2008. The judge found that “there is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the government were the owner.”Judge Wheeler did not award any damages to AIG shareholders, the Wall Street Journal reported. Instead he ruled that the plaintiffs did not suffer any economic harm even though the government was found liable, therefore shareholders’ victory hardly monetarily.The Wall Street Journal also mentioned that the ruling comes as a surprise since the government did receive $22.7 billion from selling AIG common stock. However, the damages under the law was not for the government’s gain, but the owner’s loss. Therefore, AIG’s shares would have been worthless if the government had not sold them so the shareholders did not take on any loss.“Fannie and Freddie investors are in the midst of their own lawsuit against the government challenging a change in terms of those companies’ bailouts; investing in shares of the mortgage-finance giants largely has been a political and legal bet that the courts would strike down the government’s 2012 decision to change how it collects money from them,” said Joe Light and Juliet Chung on the Wall Street Journal MoneyBeat blog.The blog post also noted that some Fannie and Freddie shareholders said Monday they viewed the AIG decision as “generally encouraging given what they see as the government’s less defensible approach with the mortgage-finance giants as with AIG.”A spokesperson for Fairholme Capital Management, a major Fannie and Freddie investor that is suing the government for forcing the housing-finance companies to send most of their profits to Treasury said that the ruling is “quite helpful,” MarketWatch reported.“It demonstrates that the government is not above the law, even during times of financial crisis,” the Fairholme spokesperson said to MarketWatch.MarketWatch also reported that the judge in the AIG case did not order any cash awards. Analysts say that this is a huge reason why Fannie and Freddie shareholders should not get too excited over Monday’s decision.“Even if the government loses one of the lawsuits regarding the GSEs, we think it is unlikely GSE shareholders will receive damages based on today’s decision,” said Brian Gardner, an analyst at Keefe, Bruyette & Woods, a New York-based investment bank.Click here to view the U.S. Court of Federal Claims official court document. American International Group Fannie Mae Freddie Mac MarketWatch 2015-06-16 Staff Writer June 16, 2015 501 Views in Daily Dose, Featured, Government, Newscenter_img Share Fannie and Freddie Investors Play it Safe After AIG Rulinglast_img

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