Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s common shares would be worth about 10 to 15 times their current value, if shareholders win their lawsuits, believes Bill Ackman.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

The hedge fund manager, known for his aggressive activism, made his comments at the annual meeting of Entrust Capital, a New York firm that invests billions of client money in hedge funds.

Pershing owns nearly 10% in the GSE’s common shares

In November, Ackman’s hedge fund filed two 13Ds showing a nearly 10% stake in each insurer’s common stock. Pershing Square detailed in the filings that they will push the companies to follow through with a plan for restructuring Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). Bill Ackman expressed his intention to engage in discussions with the government and other shareholders to achieve a favorable outcome.

Juliet Chung and Nick Timiraos of The Wall Street Journal point out Pershing’s exposure are seen by some as riskier investments because the U.S. government has warrants that it hasn’t yet exercised to acquire nearly 80% of those shares. Such a move would dilute current investors.

Fannie Mae, Freddie Mac would escape liquidation

During his speech at the annual meeting of Entrust Capital, Ackman said he is convinced shareholders will win their lawsuits against the U.S. government that challenged the Treasury Department’s bailout agreement with Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). The hedge fund manager predicted the Supreme Court would side with the plaintiffs if the suit reaches the court.

Exuding confidence, Ackman said the common shares upon a legal victory would then be worth about 10 to 15 times their current value. He also expressed confidence that Fannie Mae and Freddie Mac would escape liquidation. Instead, he feels the two GSEs will be revamped, perhaps with increased capital requirements and other protections.

As reported earlier, in November, Fairholme had announced its intention to acquire the insurance businesses of the two GSEs through exchange of equities worth $52 billion. Fairholme is the largest shareholder of preferred shares in these two GSEs. However, the recapitalization plan was rejected by the White House.

Citing people familiar with the developments, The Wall Street Journal reporters note Ackman’s bet on the common shares of the GSEs reflects his conviction that they have more upside than the preferred shares if the companies are ultimately restored as owned entities. However, Fairholme Capital Management LLC and Richard Perry of Capital LLC are betting on preferred shares.

Last week, Fannie Mae proposed to pay $7.2 billion as a profit-related dividend to the U.S. Treasury, thanks to strong results aided by home-price gains in housing markets across the U.S. Last December, Freddie Mac returned all of the $71.3 billion it received as a bailout from the government. With Fannie’s proposed payment the two GSEs will have paid more in dividend to the government – around $192.5 billion – than the $187.5 billion they received from the U.S. Treasury for their 2008 bailouts.

However, some feel Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s string of strong quarterly profits could stall the drive to dismantle GSEs.