Bank of America Corp (BAC), American International Group Inc (AIG): What Fairholme Fund’s Reopening Means for These Stocks

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Yet Fairholme has taken legal action in federal (OTCBB:FNMA) (OTCBB:FMCC) court, arguing that Fannie and Freddie are both earning profits now and repaying the money that the government used in its bailout of the mortgage entities during the financial crisis. The fund believes that last year’s change in priority rules — which allowed the government to treat money it received from the entities as payments of preferred dividends, rather than repayment of invested capital — improperly subordinated the property rights of Fairholme and other preferred-stock investors.

What’s next?
When Fairholme next releases its list of holdings in November, it’ll be interesting to see whether it boosts its interest in Fannie and Freddie. With the entities trading just above $1 per share, Berkowitz stands to make another big score if Fairholme can win its legal action. But as with his past investments, the Fannie and Freddie positions are high-risk plays that could once again show just how volatile a highly concentrated fund can be.

The article What Fairholme’s Reopening Means for These Stocks originally appeared on Fool.com.

Fool contributor Dan Caplinger owns shares of Fairholme and warrants on AIG and Bank of America Corp (NYSE:BAC). has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends AIG and Bank of America. The Motley Fool owns shares of AIG and Bank of America and has the following options: long January 2014 $25 calls on AIG. 

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