Pershing Square Holdings, Ltd. Public Class USD Accum.Shs · LSE:PSH
Pershing Square Holdings, Ltd. Public Class USD Accum.Shs — Pershing Square Holdings — Investor Presentation (January 2025)
104 slides from Pershing Square Holdings, Ltd. Public Class USD Accum.Shs's investor presentation, Jan 16, 2025
Slide 1: The Art of the Deal
The Art of the Deal January 16, 2025
Slide 2: Disclaimer
Disclaimer The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential or otherwise nonpublic information in the possession of the co
Slide 3: Agenda
Agenda Background on Fannie and Freddie Conservatorship and the Net Worth Sweep A Framework for Ending Conservatorship Illustrative GSE Restructuring 2
Slide 4: Background on Fannie and Freddie
Background on Fannie and Freddie 3
Slide 5: Prior to the Great Depression
Prior to the Great Depression Mortgage availability was limited, with 5-to-10 year terms, floating interest rates, and ~50% loan-to-value ratios Mortgages were primarily originated and retained by local thrifts, commercial banks, and insurance companies Banks would lend at floating interest rate
Slide 6: The Great Depression
The Great Depression During the Great Depression, the U.S. mortgage market was paralyzed and required significant government involvement to eventually recover The unemployment rate was nearly 25% Housing prices declined as much as 50% ~25% of mortgages were in default and ~10% of homes were in
Slide 7: Government's Response to the Great Depression
Government’s Response to the Great Depression During the Great Depression, the government undertook a series of mortgage-related initiatives that culminated with the creation of Fannie Mae 1933: Created Home Owners’ Loan Corp Issued government-backed bonds to fund the purchase of defaulted mortg
Slide 8: Evolution of the GSEs
Evolution of the GSEs Fannie and Freddie (collectively, the “GSEs”) have evolved significantly since the creation of Fannie Mae in 1938 1948: Fannie allowed to purchase loans insured by the Veterans Administration Provided liquidity to long-term, low-down-payment mortgages issued to veterans ret
Slide 9: The Rise of the GSEs
The Rise of the GSEs Since the 1980s, Fannie and Freddie have played an increasingly vital role in providing borrowers with access to an ample supply of credit Outstanding Residential Mortgages Since 1980 ($ in Billions) $22,500,000 $20,000,000 $17,500,000 $15,000,000 $12,500,000 GSEs $10,000,000 $7
Slide 10: The GSEs' Presence is Vital Today
The GSEs’ Presence is Vital Today Fannie and Freddie’s role has increased significantly since the financial crisis Share of Outstanding Residential Mortgages Held or Guaranteed Since 2000 100% 90% Banks & 80% Other 70% 60% 50% Private- 40% Label MBS 30% GSEs 20% 10% 0% Source: Inside Mortgage Financ
Slide 11: Housing is a Key Asset for the Average American
Housing is a Key Asset for the Average American Average household net worth consists primarily of equity in the home. This equity, as a proportion of household net worth, increases as household income decreases Average Housing Wealth as a % of Household Net Worth By Income Percentile 80% 70% 60% 50%
Slide 12: U.S. Mortgages are Predominantly 30-Year Fixed-Rate
U.S. Mortgages are Predominantly 30-Year Fixed-Rate The widespread use of the 30-year fixed-rate mortgage differentiates the U.S. from other large mortgage markets Term Length and Interest Rate Type as % of Outstanding Mortgages 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Finland Sweden Ireland UK N
Slide 13: Preserving the 30-Year Fixed-Rate Mortgage is Essential
Preserving the 30-Year Fixed-Rate Mortgage is Essential The 30-year, prepayable, fixed-rate mortgage has a variety of attributes that make it an affordable and borrower-friendly financing option for the average American 30-year amortization term Long-term nature allows for smaller monthly mortga
Slide 14: U.S. Mortgages are Predominantly Funded by MBS
U.S. Mortgages are Predominantly Funded by MBS The large degree of MBS funding differentiates the U.S. from other large mortgage markets Mortgage Funding as % of Outstanding Mortgages 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Germany Ireland France Netherlands Italy Spain Sweden Denmark U.S. Depos
Slide 15: The GSEs' Role in the Marketplace
The GSEs’ Role in the Marketplace The GSEs were chartered by Congress to support liquidity, stability, and affordability in the secondary mortgage market Fannie and Freddie’s role in the mortgage market Convert long-term, illiquid mortgages into highly-liquid mortgage backed securities (MBS) Pro
Slide 16: The GSEs Enable Low-Cost 30-Year Mortgage Availability
The GSEs Enable Low-Cost 30-Year Mortgage Availability Fannie and Freddie facilitate widespread access to the 30-year, prepayable, fixed-rate mortgage at a low cost Widespread access to credit The global capital markets provide a much larger and more stable source of credit than local lending in
Slide 17: Two Distinct Lines of Business
Prior to the Great Financial Crisis, the GSEs Had Two Distinct Lines of Business Fannie and Freddie Guarantees Fixed-Income Arbitrage (FIA) (Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion of which 88% are single-family) assets at 2008 peak)(1) High-quality, low-risk Low-quality,
Slide 18: Two Distinct Lines of Business
Prior to the Great Financial Crisis, the GSEs Had Two Distinct Lines of Business Fannie and Freddie Guarantees Fixed-Income Arbitrage (FIA) (Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion of which 88% are single-family) assets at 2008 peak)(1) High-quality, low-risk Low-quality,
Slide 19: Core Guarantee Business Model: High-Quality
Core Guarantee Business Model: High-Quality The GSEs guarantee the timely payment of interest and principal on a ~$7.6 trillion portfolio of mortgage-backed securities Inherently simple insurance business model Insure mortgage-backed securities (“MBS”) in exchange for premiums called guarantee f
Slide 20: Single-Family Guarantee Business: Low-Risk
Single-Family Guarantee Business: Low-Risk Guaranteeing the monthly payment of interest and principal on a 30-year, fixed-rate, prepayable mortgage is a low-risk business Low liquidity risk because defaults do not immediately accelerate payments to MBS holders – the GSEs can pay scheduled interest
Slide 21: Single-Family Guarantee Business: Low-Risk (Cont.)
Single-Family Guarantee Business: Low-Risk (Cont.) The GSEs’ credit guarantee is structurally senior to a borrower’s equity in their home Illustrative Example of GSE Guarantee on 80% LTV Mortgage $100 Owner’s Equity $20 Home If the mortgage defaults, Value Mortgage home prices would need $80 Mortgag
Slide 22: Single-Family Guarantee Business: Low-Risk (Cont.)
Single-Family Guarantee Business: Low-Risk (Cont.) Fannie and Freddie guarantee the low-risk mortgages of middle-class borrowers with excellent credit Fannie Single-Family Acquisitions Freddie Single-Family Acquisitions 100% 850 100% 850 90% 800 90% 800 760 756 755 758 759 753 752 754 747 746 80% 75
Slide 23: Single-Family Guarantee Business: Low-Risk (Cont.)
Single-Family Guarantee Business: Low-Risk (Cont.) As dominant participants in the market, the GSEs have historically retained access to capital as other participants have been forced to exit. This has allowed them to significantly expand their market share in economic downturns, when mortgage under
Slide 24: Multifamily Guarantee Business: High-Quality and Low-Risk
Fannie and Freddie’s Multifamily Guarantee Business: High-Quality and Low-Risk The GSEs play an important role in the multifamily market, guaranteeing 38% of multifamily mortgage debt outstanding in the United States Provides mortgage market liquidity for properties with five or more residential u
Slide 25: Low Guarantee Fees Prior to the Financial Crisis
Single-Family Guarantee Business: Low Guarantee Fees Prior to the Financial Crisis Fannie and Freddie’s g-fees have averaged approximately 30bps since 1990, but have risen steadily since the financial crisis Average G-fee on Single-Family Guarantee Portfolio from 1990 to 2023 (bps) 60 50 40 Long-ter
Slide 26: Limited Credit Losses Outside of the Financial Crisis
Limited Credit Losses Outside of the Financial Crisis The GSEs generated consistent profits and high ROEs at historical g-fee levels because of limited credit losses and limited capital Credit Losses for Single-Family Guarantees from 1990 to 2023 (bps) 80 70 60 50 40 30 20 10 0 (10) '90 '91 '92 '93
Slide 27: Large Losses During the Financial Crisis
Large Losses During the Financial Crisis The GSEs’ guarantee business experienced extraordinary losses during the financial crisis, but returned to profitability in 2013 Pre-Tax Income for Single-Family Guarantee Segment ($ in Billions) $19 $19 $13 $6 $6 $3 $4 $4 $4 $3 $2 $2 $2 $2 $3 $1 N/A N/A N/A
Slide 28: Losses Including Provisions Exceeded Minimum Capital Levels
Losses Including Provisions Exceeded Minimum Capital Levels The losses in the GSEs’ guarantee business during the financial crisis, when including $92bn of provisions, i.e. the accounting reserves for expected losses, significantly exceeded their minimum capital requirements Fully-Taxed Net Income a
Slide 29: Actual Credit Losses Were Lower Excluding Accounting Charges
Actual Credit Losses Were Lower Excluding Accounting Charges The GSEs’ losses during the financial crisis were much lower when calculated based on their actual credit losses, rather than provisions Fully-Taxed Net Income for Single-Family Guarantee Segment ($ in Billions) Cumulative Losses $20 bn (I
Slide 30: Losses from Subprime & Alt-A Loans
Losses from Subprime & Alt-A Loans A large portion of the credit losses in the GSEs’ guarantee business during the financial crisis resulted from the small portion of subprime and Alt-A loans in their portfolios, which they no longer guarantee Fannie Mae Subprime & Alt-A Loans as % of Single-Family
Slide 31: Minimum Capital Nearly Enough for Core Portfolio Losses
Minimum Capital Nearly Enough for Core Portfolio Losses We estimate that the GSEs’ minimum capital levels were nearly sufficient to withstand their actual losses during the financial crisis, excluding the large credit losses from subprime and Alt-A loans Fully-Taxed Net Income for Single-Family Guar
Slide 32: Two Distinct Lines of Business
Prior to the Great Financial Crisis, the GSEs Had Two Distinct Lines of Business Fannie and Freddie Guarantees Fixed-Income Arbitrage (FIA) (Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion of which 88% are single-family) assets at 2008 peak)(1) High-quality, low-risk Low-quality,
Slide 33: Fixed-Income Arbitrage Business Model: Pre-GFC
Fixed-Income Arbitrage Business Model: Pre-GFC The GSEs issued AAA-rated corporate debt to finance the purchase of mortgage assets and earn a profit from the small spread between the yield on their long-term assets and shorter-term debt. At times, FIA was able to generate a high ROE due to significa
Slide 34: FIA Served No Credible Purpose for the Mortgage Market
FIA Served No Credible Purpose for the Mortgage Market “The Federal Reserve Board has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit through the exploitation of the market-granted subsidy. Fannie's and Freddie's purc
Slide 35: Warren Buffett's Perspectives on FIA
Warren Buffett’s Perspectives on FIA “The portfolios are what really got them into the trouble. The portfolios were the ways that the managements of Freddie and Fannie tried to juice up the earnings, basically, because the insurance guaranteed that they were given that mortgage. I always thought tha
Slide 36: FIA Was Inherently Risky and Fragile
FIA Was Inherently Risky and Fragile FIA was an inherently risky and fragile business Inherently complex business model Asset-intensive, low-return business High leverage needed to achieve a high ROE Required continuous access to capital Substantial interest rate and prepayment risk High
Slide 37: The GSEs are No Longer in the FIA Business
The GSEs are No Longer in the FIA Business The GSEs’ fixed-income arbitrage business has been wound down, and the GSEs today hold $182bn of mortgage loans to support their core guarantee business, well below caps set by Treasury Mortgage-Related Investment Assets ($ in Billions) $1,000 $952 $900 $80
Slide 38: Conservatorship and the Net Worth Sweep
Conservatorship and the Net Worth Sweep 37
Slide 39: Conservatorship
Conservatorship On Sept. 6, 2008, the government placed the GSEs into conservatorship with the objective of returning them to normal operations when their businesses stabilized “Therefore, in order to restore the balance between safety and soundness and mission, FHFA has placed Fannie Mae and Freddi
Slide 40: Treasury Senior Preferred Stock Investment
Treasury Senior Preferred Stock Investment On Sept. 7, 2008, Treasury committed to invest up to $100bn of senior preferred stock in each of the GSEs through the Preferred Stock Purchase Agreements (“PSPAs”). In 2009, Treasury raised its commitment to $200bn each Terms of Senior Preferred Stock $1b
Slide 41: The Net Worth Sweep
The Net Worth Sweep On Aug. 17, 2012, the Obama administration amended the terms of the senior preferred stock (the “Net Worth Sweep”) to require the GSEs to pay dividends equal to 100% of their earnings Fannie and Freddie Quarterly Net Income Since 2011 ($ in Billions) $60 $59 $50 $40 Net Worth Swe
Slide 42: Dividends Paid to Treasury Exceed Disbursements
Dividends Paid to Treasury Exceed Disbursements The Treasury has earned an 11.6% IRR from the $301bn of dividends received from the GSEs, ~$25bn more than what was owed under the original 10% dividend rate Disbursements Received and Dividends Paid ($ in Billions) $350 $301 $300 $250 One-time draw du
Slide 43: GSEs Treated Differently Than Other Bailout Recipients
GSEs Treated Differently Than Other Bailout Recipients The government has already made more profit on the GSEs than all other bailout investments combined (1) Government Government Net Profit Year Company (2) Investment ($bn) $bn % Exited $182 $23 12% 2012 $50 ($11) (21%) 2013 $45 $12 27% 2011 $45 $
Slide 44: Capital Retention Began During Trump's First Term
Capital Retention Began During Trump’s First Term In the first Trump administration, Treasury Secretary Mnuchin made meaningful progress towards ending the conservatorships by pausing the net worth sweep and allowing the GSEs to begin recapitalizing themselves by retaining earnings GSEs: GAAP Net Wo
Slide 45: January 2, 2025 PSPA Amendment
January 2, 2025 PSPA Amendment On January 2, 2025, the Treasury Secretary and FHFA Director of the outgoing administration further amended the PSPAs The amendment restored Treasury’s right to consent to a release from conservatorship, which it had previously from 2008 to 2021 Practically, Treasu
Slide 46: A Framework for Ending Conservatorship
A Framework for Ending Conservatorship
Slide 47: Unfinished Business of the First Trump Administration
Unfinished Business of the First Trump Administration “My Administration would have also sold the government’s common stock in these companies at a huge profit and fully privatized the companies. The idea that the government can steal money from its citizens is socialism and is a travesty brought to
Slide 48: Fannie and Freddie: Situation Overview
Fannie and Freddie: Situation Overview We believe releasing the GSEs from conservatorship could generate ~$300 billion for taxpayers, while maintaining the same availability and affordability of mortgage financing that exists today with the GSEs in conservatorship The 2008 conservatorship was alwa
Slide 49: Key Objectives in Ending Conservatorship
Key Objectives in Ending Conservatorship Key Objectives: Maintain the availability and affordability of the 30-year, fixed-rate, prepayable mortgage Protect taxpayers from bearing the cost of a housing downturn Minimize government involvement in the housing finance system Maximize probabilit
Slide 50: Our Framework for Ending Conservatorship
Our Framework for Ending Conservatorship Ending the conservatorship of Fannie and Freddie will maintain the widespread availability and affordability of the 30-year, fixed-rate, prepayable mortgage while providing substantial profit to taxpayers Key steps to ending conservatorship: 1 Set appropriate
Slide 51: FHFA's capital rule increased requirements from 0.45% to 4%
FHFA’s capital rule, finalized in 2020 and amended in 2022 and 2023, increased the capital requirements for the GSEs’ guarantee business from an inadequate pre-crisis level of 0.45% to an overly conservative, impractical level of 4% 50
Slide 52: Set Appropriate Capital Requirements
1 Set Appropriate Capital Requirements We do not believe bank standards are appropriate for the GSEs’ guarantee business, which carries significantly fewer risks Reformed Banks GSEs Traditional Mortgages Credit Risk Medium Low Interest Rate Risk Liquidity Risk Jumbo & Alternative Mortgage Pr
Slide 53: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The GSEs are credit insurance companies, and therefore insurance regulatory concepts are more relevant than bank standards in determining GSE capital requirements “Insurance regulation is also more likely to see a stream of future premiums as a source o
Slide 54: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) Private mortgage insurance is a very high-risk business, and is also an inappropriate benchmark when setting capital levels for the GSEs Private Mortgage Reformed Insurers (“PMIs”) GSEs Traditional Mortgages Credit Risk High Low High LTV Guarantee 8
Slide 55: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The GSEs require significantly less capital than the PMIs because their guarantees are much safer Illustrative Mortgage Guarantee Coverage as % of LTV 100% PMIs 80% Coverage: 80-100% LTV Typical Severity: 100% Capital Ratio: 5.6%(1) GSEs Coverag
Slide 56: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) We do not believe the GSEs can earn an adequate return on capital to attract sustainable private investment at a 4% capital requirement unless g-fees are raised substantially “To generate the large amount of private capital required to fund such a syste
Slide 57: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The current 4% capital requirement is too high and would increase the cost of mortgage financing at a time when home affordability is at record lows and mortgage rates are at multiyear highs Fannie Mae Illustrative Return on Equity for New Single-Family
Slide 58: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) Potential increases in g-fees would cost the typical homebuyer significantly more in interest over the life of his or her mortgage G-Fee Increase: Impact to Homebuyer Illustrative ROE Required by Investors 11.9% 12.4% 13.0% 13.6% 14.2% Avg. U.S. Home Sa
Slide 59: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) 2.5% of equity capital is appropriate when benchmarked against the required capital levels for banks and private mortgage insurers Reformed Private Mortgage Banks GSEs Insurers (“PMIs”) Traditional Mortgages Credit Risk Low Medium High Interest Rate Ris
Slide 60: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) 2.5% of equity capital, or ~$170 billion, to support ~$6.7 trillion of single- family guarantees would provide the GSEs with a fortress balance sheet with more than 5.5 times as much capital as historical levels Equity Requirement for Single-Family Guar
Slide 61: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) Analysts concur with our recommendation for a minimum capital requirement of 2.5% “While GSE revenues and earnings are significantly higher now vs pre-GFC levels driven by much higher guarantee fees and meaningfully larger guarantee portfolios, required
Slide 62: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The GSEs’ enormous earnings power adds a substantial additional layer of protection to a fortress balance sheet The GSEs’ balance sheets do not reflect the ~$32bn in annual net revenue they will receive from g-fees on their existing ~$7 trillion of outs
Slide 63: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The GSEs’ balance sheet quality is enhanced by their contractual future revenue, as well as their ability to gain share in crisis While they do not count towards capital, future contractual guarantee fees significantly enhance balance sheet strength
Slide 64: Set Appropriate Capital Requirements (Cont.)
1 Set Appropriate Capital Requirements (Cont.) The GSEs’ total Claims Paying Resources includes their equity capital, contractual g-fees on $6.7 trillion of assets, and ability to gain market share in a crisis Proposed Capital and Claims Paying Resources for Single-Family Guarantee Business ($bn) $3
Slide 65: Limit Government-Granted Benefits
2 Limit Government-Granted Benefits Government-granted benefits that do not serve a vital purpose for the mortgage market should be eliminated Exemption from SEC registration of debt and MBS UST line of credit that authorizes up to $2.25bn of GSE obligations Exemption of GSE securities from Vo
Slide 66: Limit Government-Granted Benefits (Cont.)
2 Limit Government-Granted Benefits (Cont.) Benefits that we believe should be preserved: 20% risk weighting for GSE MBS (vs. 50% for private label MBS) Appropriate in light of lower risk and higher liquidity of agency MBS; also raises demand for agency MBS and thus lowers mortgage costs GSE M
Slide 67: Develop Market-Based Compensation & Governance
3 Develop Market-Based Compensation & Governance Compensation for Key Executives Salaries based on prevailing market rates Bonuses in the form of restricted stock with long-term vesting Compensation targets emphasize capital strength and operational risk management and controls, in addition to
Slide 68: Clarify Nature of Government Backstop
4 Clarify Nature of Government Backstop We do not believe that a direct, explicit government guarantee of Fannie and Freddie’s MBS is necessary, feasible, or desirable There are several complications with an explicit MBS guarantee Would likely require the U.S. government to consolidate the $7.6t
Slide 69: Clarify Nature of Government Backstop (Cont.)
4 Clarify Nature of Government Backstop (Cont.) The existing PSPAs should be modified to act as a government backstop, providing the same benefits as an explicit guarantee without the negative consequences Treasury’s total funding commitment under the PSPAs is $445bn(1) We believe the full $445b
Slide 70: Clarify Nature of Government Backstop (Cont.)
4 Clarify Nature of Government Backstop (Cont.) Losses would need to exceed $600bn before both first-loss private capital and PSPA funding would be extinguished, or ~23x adjusted cumulative losses in the single-family guarantee segment during the Great Financial Crisis (i.e. 2007-2011) Financial Cri
Slide 71: Clarify Nature of Government Backstop (Cont.)
4 Clarify Nature of Government Backstop (Cont.) A major ratings agency has recently indicated that exiting conservatorship with the PSPAs in place would be credit neutral “Current ratings reflect support provided by the U.S. Treasury Department under the Senior Preferred Stock Purchase Agreements (P
Slide 72: Clarify Nature of Government Backstop (Cont.)
4 Clarify Nature of Government Backstop (Cont.) Probability of a draw, credit quality, and impact on mortgage costs are important factors to consider when setting the PSPA commitment fee Substantial first-loss private capital makes a draw highly unlikely While there is no perfect comparable, we
Slide 73: Illustrative GSE Restructuring
Illustrative GSE Restructuring 72
Slide 74: Illustrative GSE Restructuring: Overview
Illustrative GSE Restructuring: Overview We believe a restructuring of Fannie and Freddie should occur in three consecutive phases 1. Cleanup of existing capital structure US Treasury Senior Preferred deemed repaid following recoupment of principal plus an annualized return of 11.6% Existing PSP
Slide 75: UST Preferred has Been Repaid
UST Preferred has Been Repaid Treasury has now recouped its total cash invested plus ~$25bn in excess of what would have been owed under the original 10% dividend rate Fannie Freddie Total GSEs Dividends for 10% Annualized Return $301 Excess Dividends $25 11.6% cash IRR $193 $181 11.2% cash $13 IRR
Slide 76: UST Preferred has Been Repaid (Cont.)
UST Preferred has Been Repaid (Cont.) Former Trump administration officials have acknowledged that Treasury’s Senior Preferred Stock has been repaid with interest “So it’s an 11.5% moment [the IRR on the Senior Preferred]. And it just shows that, you know, that there is an opportunity here also to p
Slide 77: The GSEs Have Paid an Extra $25bn to Treasury
The GSEs Have Paid an Extra $25bn to Treasury If the $25bn of excess payments were returned to Fannie and Freddie, Fannie would not need to raise any private capital, while Freddie’s capital raise would be much smaller Fannie Capitalization Freddie Capitalization at 12/31/26 at 12/31/27 Private Capi
Slide 78: Pro Forma Capitalization: Fannie Mae
Pro Forma Capitalization: Fannie Mae Given its current capital position, Fannie Mae should be ready to exit conservatorship by year-end 2026, and will only need to raise ~$5bn 12/31/24 Estimated 12/31/26 Pro Forma Estimated Capital at 12/31/24(1) $116bn Retained Earnings in 2025-2026 $5bn Private Ca
Slide 79: Common Equity Bridge: Fannie Mae
Common Equity Bridge: Fannie Mae The GSE restructuring plan enables Fannie to achieve the capital level required to exit conservatorship by year-end 2026 Common Equity Bridge – Fannie Mae ($bn) $116 $5 $97 $19 $121 $32 ($60) 9/30/24 GAAP (+) Q4'24E-2026E (+) UST Senior (+) Re-IPO PF 12/31/26E (+) Co
Slide 80: Pro Forma Capitalization: Freddie Mac
Pro Forma Capitalization: Freddie Mac Following several years of robust growth in its guarantee book, Freddie Mac requires a larger capital raise of ~$15bn 12/31/24 Estimated 12/31/27 Pro Forma (1) Estimated Capital at 12/31/24 Retained Earnings in 2025-2027 Private Capital Raise $99bn $15bn $30bn $
Slide 81: Common Equity Bridge: Freddie Mac
Common Equity Bridge: Freddie Mac The GSE restructuring plan enables Freddie to achieve the capital level required to exit conservatorship by year-end 2027 Common Equity Bridge – Freddie Mac ($bn) $99 $85 $14 $15 $73 $33 ($35) 9/30/24 GAAP (+) Q4'24E-2027E (+) UST Senior (+) Re-IPO PF 12/31/27E (+)
Slide 82: Cleanup Existing Capital Structure: Junior Preferred
Cleanup Existing Capital Structure: Junior Preferred We believe the existing junior preferred can be left outstanding, refinanced, or converted to common on a negotiated basis Non-cumulative, perpetual security No dividends in arrears for 2008 through present timeframe Future dividends not pay
Slide 83: New Private Capital Raises
New Private Capital Raises We estimate that Fannie Mae can be fully recapitalized by year-end 2026, while Freddie Mac can be fully recapitalized one year later Total Capital Held at Fannie and Freddie ($bn) $5bn IPO $15bn Fannie Freddie $128 $120 IPO $124 $116 $104 $107 $97 $99 $83 $74 $64 $54 12/31
Slide 84: Timing of Private Capital Raises
Timing of Private Capital Raises We believe there are significant benefits to executing Fannie’s smaller IPO first, followed by Freddie’s larger IPO approximately one year later Fannie’s $5bn IPO is modestly sized for an entity of its scale Allows the market to observe one entity operating post-
Slide 85: Fannie and Freddie's IPOs are Both Executable
Fannie and Freddie’s IPOs are Both Executable Fannie’s $5bn IPO is readily achievable given its scale and return profile. Freddie’s larger IPO will benefit from the learnings from Fannie’s capital raise Company Proceeds Year of IPO Year Founded $29bn 2019 1933 $25bn 2014 1999 (Telecom) $24bn 2018 19
Slide 86: Key Modeling Assumptions
Key Modeling Assumptions We have made several illustrative modeling assumptions to estimate the long-term earnings power of the GSEs Single-Family Guarantee Business G-fees of 65bps, in-line with latest pricing of 64bps for FNMA and 67bps for FMCC FHFA as regulator should have the ability to a
Slide 87: Illustrative Financial Projections: Fannie Mae
Illustrative Financial Projections: Fannie Mae We believe a low-double-digit return on capital balances the GSEs’ utility-like status with the need to deliver a market return to investors FNMA Illustrative Financial Projections ($ in millions, except per share data) 2027E 2028E 2029E 2030E 2031E 203
Slide 88: Illustrative Financial Projections: Freddie Mac
Illustrative Financial Projections: Freddie Mac We believe a low-double-digit return on capital balances the GSEs’ utility-like status with the need to deliver a market return to investors FMCC Illustrative Financial Projections ($ in millions, except per share data) 2027E 2028E 2029E 2030E 2031E 20
Slide 89: Common Stock Valuation: Fannie Mae
Common Stock Valuation: Fannie Mae Using our base case modeling assumptions, we estimate that Fannie Mae shares could be worth ~$35 by year-end 2026 when fully recapitalized FNMA Illustrative Valuation 2035E Dividend per Share $2.23 Perpetuity Growth Rate 3.0% Assumed Cost of Equity 8.0% Implied Sha
Slide 90: Common Stock Valuation: Freddie Mac
Common Stock Valuation: Freddie Mac Using our base case modeling assumptions, we estimate that Freddie Mac shares could be worth ~$39 by year-end 2027 when fully recapitalized FMCC Illustrative Valuation 2035E Dividend per Share $2.41 Perpetuity Growth Rate 3.0% Assumed Cost of Equity 8.0% Implied S
Slide 91: How will Fannie and Freddie be able to IPO at more than $30 per
How will Fannie and Freddie be able to IPO at more than $30 per share when the stocks currently trade at ~$6? 90
Slide 92: Path to a “Re-IPO”: GGP Case Study Share price
Path to a “Re-IPO”: GGP Case Study GGP shares appreciated dramatically as key catalysts unfolded prior to exiting bankruptcy, culminating in a “re-IPO” at an attractive valuation GGP share price and stock distributions from 12/31/2008 to 12/31/2010 $25.00 5/3/10-5/7/10: Final bids; GGP wins 11/15/10
Slide 93: Distribution
Fannie and Freddie Qualify for NYSE Listings Fannie and Freddie meet all the NYSE listing requirements today and could re-list on the NYSE before exiting conservatorship, subject to approval by FHFA Fannie (FNMA) Freddie (FMCC) NYSE Listing Requirements(1): Minimum Share Price $4.00 Distribution
Slide 94: Trading Comparables for Fannie and Freddie
Trading Comparables for Fannie and Freddie We believe Fannie and Freddie should be valued somewhere between P&C insurance companies and regulated utilities Property & Regulated Fannie and Casualty Insurance Utilities Freddie Business Attributes Pricing Volatile Regulated Regulated Must be chartered
Slide 95: Comparable Company Valuations and Returns
Comparable Company Valuations and Returns We believe a mid-teens multiple of earnings is appropriate when benchmarked against P&C insurance and regulated utility companies Return on Trading Multiples Total Shareholder Return (1) Mkt Cap Common Equity CY'25E Market Cap / EPS Dividend (2) Company ($bn
Slide 96: Pro Forma Common Share Ownership
Pro Forma Common Share Ownership Post-restructuring and a new capital raise, the American taxpayers will continue to own majority stakes in Fannie and Freddie Fannie Ownership Post-IPO Freddie Ownership Post-IPO Converted Converted Junior Junior Preferred Preferred 10% 9% Legacy Legacy Shareholders
Slide 97: Value of Warrants to Taxpayers
Value of Warrants to Taxpayers We believe that Treasury’s warrants could generate over $300 billion over time, providing a meaningful source of funds for other government priorities Illustrative Monetization Path for Treasury ($bn) '27-'32E 2027E 2028E 2029E 2030E 2031E 2032E Total Common Dividends
Slide 98: Thoughts on UST Senior Preferred
Thoughts on UST Senior Preferred We believe the narrative around Treasury potentially “converting” its Senior Preferred Stock (“SPS”) into common stock is flawed Treasury already owns 79.9% of both companies Mathematically, this claim on the GSEs’ earnings can only increase by 25% An attempt t
Slide 99: Thoughts on UST Senior Preferred (Cont.)
Thoughts on UST Senior Preferred (Cont.) An SPS conversion would severely impair the value of Treasury’s stakes in Fannie and Freddie and preclude any new private capital raise Illustrative value of Treasury’s investment in Fannie Mae ($bn) SPS Deemed Repaid SPS Converted to Common at IPO Price(1) A
Slide 100: Thoughts on UST Senior Preferred (Cont.)
Thoughts on UST Senior Preferred (Cont.) An attempt to convert the SPS into common would be inconsistent with FHFA’s duties as a conservator “Eighty-seven years of FDIC, FSLIC, and RTC history demonstrate that conservators are caretakers who are not meant to operate an institution indefinitely. A co
Slide 101: Thoughts on UST Senior Preferred (Cont.)
Thoughts on UST Senior Preferred (Cont.) Consistent with more than 4,000 precedent conservatorships and receiverships, the Senior Preferred Stock is only entitled to repayment with interest “In open bank assistance and conservatorships, the stakeholders’ interests are protected by their contractual
Slide 102: The GSEs are Already Getting Ready to Exit
The GSEs are Already Getting Ready to Exit “Had we stopped the sweep of capital day one, by the time we got to the fourth year of the Trump administration, we easily could have done a secondary offering or two and fully capitalize the companies, or get very close it.” - Craig Phillips, Counselor to
Slide 103: We Believe the Time to Act is Now
We Believe the Time to Act is Now Current robust economic and financial market conditions are ideal for successful private capital raise Unemployment remains near record lows GDP growth trending at approximately 3% National home prices have surpassed the 2006 peak(1) Major stock market ind
Slide 104: In the Wise Words of President-Elect Trump… “Deals are my art form. Other people
In the Wise Words of President-Elect Trump… “Deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That's how I get my kicks.” - Donald J. Trump Source: The Art of the Deal (1987). 103
Pershing Square Holdings — Investor Presentation (January 2025) on 6ix