Hedge fund Pershing Square Capital Management LP's outspoken manager William Ackman, who has made headlines over the past year for his short positions (namely the financial services sector), took aim at the $700 billion bailout bill and Securities and Exchange Commission's short selling ban at the 4th Annual New York Value Investing Congress on Monday.
Continue reading below
The activist investor proposed that the money be used by the government to buy "seriously delinquent loans" at a negotiated price between 50 cents and 55 cents on the dollar. He said that by creating a floor in mortgage sales, the government could potentially enhance the value of troubled mortgage-related securities.
"I think the government will ultimately do the right thing," he added.
One regulator, which Ackman believes has not done the right thing, is the SEC. He criticized its temporary ban on the short selling of financial stocks and a handful of other troubled companies, saying it did "more to destroy investor confidence than any other action taken by the SEC in the past five months." He called the move a "market manipulation at the behest of the SEC." He went even further to say that the SEC would be best to ask the short sellers which companies they are targeting to help sound the alarms on shaky companies.
"People that identified problems should be heralded or at least listened to," he added.
The activist investor also divulged his new long investments, Wachovia Corp. and American International Group Inc. He noted that the two embattled company's are his first financial sector long investments in five years.
Ackman said he made a "small investment" in the past two weeks in AIG at roughly $3.80 per share. How small? He didn't say, but he did say that this small investment makes him at least the 12th-largest shareholder -- not too difficult when a company's market cap shrinks by over 90% since the beginning of the year. Ackman said AIG's book value including future Federal Reserve dilution and mark-to-market losses on its credit default swaps is about $6 per share.
"I think AIG assets are very attractive, almost all are worth more than book value," he said. He told The Deal that the company's plan to sell its businesses in large pieces is viable despite the tight lending markets, because there exist large strategic buyers out there such as Berkshire Hathaway Inc. and reinsurer Munich RE -- AIG shareholders better hope so as the the insurer prepares to sell a host of noncore businesses to pay back the Fed's $85 billion bridge loan.
Ackman added that if the government is paid back quickly on its two-year loan, it should consider making a concession and possibly take control of 10% of the company rather than a highly dilutive 79.9%.
Ackman also bought roughly a 7% stake, or about 180 million shares, in Wachovia just after Citigroup Inc. made an offer to acquire its banking unit on Sept. 29. He sold about 9.5 million shares after Wells Fargo & Co. trumped Citi's bid with a $15.1 billion offer. As Citi battles it out with Wells Fargo, Ackman's solution is a Solomon-like split of the Charlotte, N.C.-based bank.
Wachovia "is worth more if broken into two pieces" due to tax benefits associated with such a transaction, Ackman said. His answer may be for Citigroup to buy Wachovia's bank subsidiary and for Wells Fargo to nab the holding company, which among other things includes the second-largest brokerage operation in the U.S. after Merrill Lynch & Co. - Michael Rudnick
Michael Rudnick is a senior writer for The Deal.
Comments
"People that identified problems should be heralded or at least listened to," he added.
Sounds reasonable, but apparently unlikely.