GSE capital plan won't work if investors cheated: Stockholder

A U.S. regulator's plan to boost capital in the mortgage-finance giants won't work unless investors get "compensated" for the billions of dollars the government has collected from the companies in recent years, one shareholder said.

A June Federal Housing Finance Agency proposal that Fannie Mae and Freddie Mac hold a combined capital buffer of as much as $181 billion would require among the largest stock sales "in history," hedge fund manager Bill Ackman, who owns big stakes in both companies, wrote in a letter to the regulator dated Nov. 15. But few private investors would participate in such offerings if existing shareholders aren't "treated fairly," he argued.

What does Ackman consider fair treatment? Compensating current shareholders for the fact that the Treasury has extracted more than $237 billion" from Fannie and Freddie since 2013, he said.

"New investors will be highly skeptical as to how they will be treated if the ultimate outcome is poor for legacy shareholders," Ackman wrote.

Fannie and Freddie buy mortgages from lenders, wrap them into securities and make guarantees to investors in case the loans default. Ackman's Pershing Square Capital Management is among hedge funds that have been fighting the government for years over the Obama administration's 2012 decision to sweep nearly all of the companies' earnings into the Treasury.

Fannie and Freddie have been under federal control since the 2008 financial crisis, and are largely barred from holding capital to protect against losses. In its June announcement, the FHFA acknowledged that its proposed capital requirements won't happen as long as the companies remain in conservatorship.

Ackman said he agreed with the FHFA that Fannie and Freddie "must raise capital."