Freddie Mac Swings to Loss, Won't Make Dividend Payment
03 Maggio 2016 - 04:00PM
Dow Jones News
Mortgage-finance company Freddie Mac posted a loss—only its
second quarter in the red in the past four years—driven by lower
interest rates and increased credit spreads.
Freddie reported a loss of $354 million, compared with a
prior-year profit of $524 million and a fourth-quarter profit of
$2.16 billion. The company's two recent losses have come in the
past three quarters.
The latest quarter included a $900 million hit tied to a larger
decline in interest rates and a $600 million loss from widening
spreads. Losses from derivatives, which Freddie uses to hedge
interest-rate risk, were $4.56 billion in the quarter.
Amid improvement in the housing market, Freddie saw its serious
delinquency rate continue to improve, reaching 1.2%, the lowest
level in at least four years.
Freddie and mortgage-finance firm Fannie Mae were put into a
so-called conservatorship under government control during the 2008
financial crisis, eventually receiving nearly $188 billion in
support from the U.S. Treasury.
Under the terms of the bailout, the companies must send nearly
all of their profits to the government in the form of dividends and
wind down their capital buffers over time.
Because its net worth of $1 billion was less than its capital
buffer of $1.2 billion, Freddie won't send a payment to the
Treasury for the quarter. It also didn't need a capital infusion
because total equity remained positive, though it declined from
$2.94 billion a year earlier.
In all, the company has sent $98.2 billion to the Treasury,
compared with the $71.3 billion infusion it had received.
Freddie and Fannie have recently been caught between
shareholders, civil-rights groups and some small lenders who want
to see them freed from government control, a White House that
believes the current system is broken, and a Congress that can't
come to agreement on what the future system should be.
The price of Freddie's portfolio, as with that of all bonds,
rises and falls as interest rates change. The company uses
derivatives in an effort to counteract that effect, but because of
accounting rules, the derivatives can make large profits or losses
appear over short periods.
Over the long term, the impact of the derivatives accounting
issue is negligible. But as the capital buffer disappears, the
accounting issue could cause Freddie to require an injection of
capital from the Treasury.
Fannie and Freddie don't make loans. Instead they buy them from
lenders, wrap them into securities and provide guarantees to make
investors whole if the loans default.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
May 03, 2016 09:45 ET (13:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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