The focus of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) litigation has narrowed even more, with Bill Ackman’s Pershing Square Capital Management filing a notice of voluntary dismissal for its lawsuit in the DC District Court on Friday. This doesn’t mean that Ackman has given up the fight, his lawsuit in the Court of Federal Claims under Judge Sweeney is still ongoing, and if you listen to some Fannie Mae bulls, it could even be a smart tactical move.
Fannie Mae – Ackman focuses on Federal Claims
Last month, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders took a big hit when US District Judge Royce Lamberth threw out Perry Capital’s and Fairholme Fund’s cases. While it is a major setback, both plaintiffs are appealing and it’s only half of the overall argument against government actions regarding the GSEs: the cases in front of Judge Lamberth claim that the government violated the Administrative Procedures Act by overstepping the authority given in HERA, while the cases in front of Judge Sweeney claim that the full income sweep violates the Takings Clause.
Ackman’s case hadn’t yet been thrown out by Judge Lamberth, but it’s hard to see what could cause Lamberth to reach a different conclusion for what is nearly an identical case, and Ackman’s decision to drop the matter means that he doesn’t think the Administrative Procedures Act is going to work out and doesn’t want to follow through with a lengthy appeals process. It’s not great news for shareholders, but it’s not a fundamental shift either.
Dropping the suit may be a tactical move
Another interpretation is that Ackman is reacting to recent government tactics that are meant to shift attention the other way, toward the DC District Court ruling. Justice Department lawyers have argued that Judge Sweeney should halt the Fairholme case until after the appeals have played themselves out since the two lawsuits have so much overlap. By dropping his case in the DC District Court, Ackman may prevent them from using the same tactic against him.
There is one other possibility that can’t be ignored. If Ackman has decided to bow out of the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) fight altogether this could be the first of two such announcements. Anyone invested in the GSEs might want to keep an eye on trade volumes as well.