9 months to the day I announced my GSE stocks sale and was lambasted online for “selling on the eve of a SCOTUS victory”, SCOTUS finally weighs in.
Q1 2021 hedge fund letters, conferences and more
Their answer?
It’s Over.
Some shareholders are hanging their hat on the remand to the 5th Circuit on the constitutionality of the FHFA single head director. Their thought process is that this will then make the actions of FHFA illegal. Justice Thomas commented on that:
I seriously doubt that the shareholders can demonstrate that any relevant action by an FHFA Director violated the Constitution. And, absent an unlawful act, the shareholders are not entitled to a remedy
Yeah…. it should be noted on the remedy (damages) portion of the ruling the justices were completely aligned. So, play this out. Let’s pretend the lowed court does in fact rule for damages for shareholders. The Fed will surely appeal to SCOTUS which has already said they do not believe monetary damages are warranted here unless shareholders can prove the actions of FHFA were illegal or against the wishes of the administration. The justices explicitly said they believe neither to be the case here.
Did FHFA “preserve and protect” the GSE’s? The court says emphatically that since the GSE’s continually operated, are profitable, and are still the cornerstone of the US housing market, YES, they did. The court ruled that there is nothing in the regulations saying that the GSE’s were to be operated for the benefit of shareholders. Since the GSE’s are still performing their essential functions, they were in no doubt “preserved”.
The shareholders’ characterization of the third amendment as a step toward liquidation is inaccurate. Nothing about the amendment precluded the companies from operating at full steam in the marketplace, and all the available evidence suggests that they did so. Between 2012 and 2016 alone, the companies “collectively purchased at least 11 mil- lion mortgages on single-family owner-occupied properties, and Fannie issued over $1.5 trillion in single family mortgage-backed securities.” Perry Capital, 864 F. 3d, at 602
During that time, the companies amassed over $200 billion in net worth and, as of November 2020, Fannie Mae’s mortgage portfolio had grown to $163 billion and Freddie Mac’s to $193 billion.14 This evidence does not suggest that the companies were in the process of winding down their affairs.
It is not necessary for us to decide and we do not decide whether the FHFA made the best, or even a particularly good, business decision when it adopted the third amendment. Instead, we conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.
So, there will be no damages….
So then what happens to the GSE’s and shareholders? Flash forward 5 years, my bet would be shareholders are in the exact same position.
