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Pershing Square founder Bill Ackman warned that his investment firm’s rival, Icahn Enterprisesmay prove to be another Archegos, a hedge fund whose spectacular 2021 implosion caused the loss of more than $10 billion for Wall Street banks.
on early MayHindenburg Research accused the holding company and its prominent controlling owner, Carl Icahn, of using “It looks like a ponzi” economy by paying existing retail investors with unsustainably large dividends funded by new investors buying its stock exchange-listed depository units.
Since the allegations were filed by Hindenburg, who said from the start that he sold Icahn Enterprises short on a bet that its price would fall, the holding has dropped by half of its market value and is now worth $8.9 billion—less than Ackman’s $10 billion Pershing Square .
On Wednesday, the Pershing Square billionaire said he “attracted” by accusations and especially the discovery of personal loans taken by Icahn and secured against the deposit units of his eponymous investment holding, as they may prove to be unstable.
It, he said, “reminds me of Archegos”, where Wall Street is prime brokers are left in the dark about how much money their over-lending clientele around town has borrowed.
“If Icahn were to sell any shares, the stock would likely fall immediately because the overhang of further sales and the further resulting loss of confidence would encourage other shareholders to exit before the flood,” Ackman wrote.
I enjoyed the @HindenburgRes $IEP situation, and there are some interesting learnings here. For example, one learns from $IEP that a controlling shareholder of a company with a small float that pays a large dividend may cause his company to sell a large…
– Bill Ackman (@BillAckman) May 24, 2023
Bill Hwang’s Archegos family office collapsed like a house of cards two years ago, resulting in many banks are losing money, especially Credit Suisse. The Zürich lender, caught holding the proverbial bag, suffered a $5.5 billion hit that helped cement its status as The worst managed bank in Europe and proved to be a significant contributor to it last fall in March.
It’s Hwang’s turn now was charged with fraud of the Securities and Exchange Commission, which warned that even a hedge fund like Archegos “could have big implications for investors” given enough banks were willing to lend it money for speculation.
Icahn Enterprises could not immediately be reached at luck for comment.
Ackman said he is neither long nor short on Icahn Enterprises, but is just watching with interest from the sidelines to see how the margin loans funded by Icahn are doing.
“All it takes is for a lender to break ranks and liquidate shares or attempt to foreclose, before the house is destroyed,” he wrote. “Patsy is the last lender to liquidate.”
Icahn blamed the Federal Reserve’s QE for his failed bets
On May 10, Icahn Enterprises reported that it had moved to a quarterly net loss of $270 million from a profit of $323 million a year earlier amid a negative return of 4.1%.
Despite the poor performance in Q1, the sharp decline in the price of its deposit units and, most importantly, Hindenburg’s allegations of impropriety, CEO David Willets ended the investor call after in 12 minutes after his team’s scripted statements. “Obviously no questions, we appreciate your time,” he said.
Hindenburg went on the attack again the next day after filings revealed that Icahn had now pledged nearly 203 million units against his margin loans, up from 181 million previously. , which represents a “near-term critical threat“of the unitholders.
“The deal that Icahn made with retail investors was, in essence, ‘buy ~$9 worth of stock at ~$32 and I’ll give you back $2 of your own money every quarter, for free’,” it wrote, which refers to quarterly dividend payments. The price of Icahn Enterprises’ depository units has since fallen further, closing Wednesday below $24 apiece.
A week ago, an analysis of Financial Times shows that Icahn’s investment portfolio has indeed has lost money every year since 2014. In the past six years alone, the newspaper found $6 billion in profits that failed to recoup $8.8 billion from losses on bearish bets.
Speaking to FT, Icahn acknowledged that he made mistakes and failed to listen to his own advice and trading strategies that would limit his losses. “I clearly believe that the market is in for big trouble,” he explained, adding that he failed the Federal Reserve’s quantitative easing that helped bolster equity prices.
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