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The 2008 financial crisis extracted a great toll on some of the world's largest institutions. In the dark days of late 2008 and early 2009, everyone from active investors to those with no investments at all watched to see which institutions would run into trouble next.
As we approach six years after the crisis began, a few companies many people thought were dead are living in the shadows, with some of them earnings billions for those who got in at the right time. While not every one is a suitable investment for the average investor, it's still both interesting and informative to see which once-thought-dead companies at least still have a pulse.
The never ending money pits
When the Federal Housing Agency took the role of conservator for Fannie Mae (FNMA 1.47%) and Freddie Mac (FMCC 3.41%) in 2008, things looked bad for them and things were bad for them. The Treasury was authorized to inject up to $100 billion each into Fannie and Freddie, but it soon became clear that more backing would be required to keep the them on stable ground. Seeing the economic consequences of allowing Fannie and Freddie to fail, additional funding was authorized, and from a political and public perspective, they looked like bottomless money pits.
Not surprisingly, conservative investors abandoned Fannie and Freddie, to be replaced by a new group of speculators who traded the delisted shares in the $0.30 range. As money continued to bleed out of them, it was generally assumed that Fannie and Freddie were zombie stocks waiting for housing reform to finish them off.
But Fannie and Freddie are beginning to appear in the minds of ordinary people again today, though this time they're raking in massive profits. In fact, they've been able to more than repay the original $189 billion the Treasury provided, and, had the original terms of the senior preferred stock purchase agreement been maintained, they would be about three years from repaying the Treasury funds with the 10% annual dividend included based on Bill Ackman's latest estimates.
However, Fannie and Freddie remain a hot-button issue as Congress debates, but has yet to pass, legislation to wind them down. At the same time, major hedge funds are suing the government to reverse the change to the terms of the senior preferred stock purchase agreement that now runs a net worth sweep of Fannie and Freddie on a quarterly basis, sweeping the gains into the Treasury. The chances that the lawsuits will succeed and the larger profits at Fannie and Freddie have since boosted their share prices into the $4 range.
Although whether they will continue to exist and who will profit from them remains in doubt, Fannie and Freddie have shown that they can be profitable and meet their current obligations.
Click over to this article for a closer look at the upside and risks to Fannie and Freddie common stock.
One down, a bunch more to save
When Lehman Brothers declared bankruptcy on Sept. 15, 2008, it looked like the end for the company's investors. As one of the closest sand castles to the waves of a subprime mortgage meltdown, Lehman was bogged down with derivatives gone bad and a financial system in which fear was starting to spread.
But for those who bought Lehman Brothers bonds during the darkest days, the returns have been enormous. With the bonds trading as low as $0.08 on the dollar at the bottom, big money funds snapped them up, and as the bonds have steadily risen in value, some funds are ahead by more than $1 billion.
The gains have come as Lehman's asset sales go better than expected and some of the investors who bought the bonds at the bottom expect to make even more in the near future. However, based on the trading price of the bonds and the preferred stock, it looks like recovery for the preferred stockholders is a long shot.
Even in its wind-down, Lehman still had around 300 employees as of 2013. Although Lehman will eventually cease to exist, companies of its size keep on as zombies even as they're carved up for parts.
The old GM
Because of the nature of General Motors (GM 4.37%), its reorganization was not an ordinary one, and it's still is subject of strong political words today. Politics aside, it's important to know that the General Motors we see today is not the same entity as the old GM.
Old GM became Motors Liquidation Company, or MLC, as part of the reorganization. But like the Lehman Brothers case, the GM reorganization is not something that was wrapped up in time for an afternoon picnic. MLC continues to handle issues relating to the old GM.
Although MLC common stock is virtually worthless, shares of the Motors Liquidation Company Unsecured Creditors Trust (MTLQU) continue to trade. As MLC was set up to manage the reorganization distributions and liquidate the old GM, these shares represent the unsecured creditors' distributions coming in the form of new GM common stock or warrants to purchase new GM common stock.
Like Lehman Brothers, Motors Liquidation Company continues to exist to serve the interests of the creditors of one of the largest reorganizations in corporate history.
We have a pulse
While Lehman Brothers and Motors Liquidation Company exist primarily for the purpose of satisfying claims, the Fannie and Freddie situation is a remarkably different one, since both companies are still active businesses and strongly profitable. Yet Fannie and Freddie's futures still remain in doubt, based on the outcome of political action and court decisions.
Those looking for a quick decision on any of these matters shouldn't hold their breath. With all four of these companies being major institutions, expect several years before any one of them will disappear for good.
