Freddie Mac Posts Fourth Straight Loss, Cuts Dividend (Update1)
By Dawn Kopecki
Aug. 6 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage-finance company, posted a larger fourth-quarter loss than analysts estimated as delinquencies rose and cut its dividend to shore up capital.
The second-quarter net loss of $821 million, or $1.63 a share, compares with the 54-cent a share average loss estimate of nine analysts in a Bloomberg survey. The common-share dividend will be reduced to 5 cents from 25 cents, McLean, Virginia-based Freddie said today in a statement.
Freddie had credit-related expenses of $2.8 billion, double the first quarter, and wrote down the value of subprime and low- quality mortgage securities by $1 billion as the biggest housing slump since the Great Depression increased foreclosures. Freddie Chief Executive Officer Richard Syron is seeking to bolster capital and restore confidence after U.S. Treasury Secretary Henry Paulson was forced to step in with a rescue plan for Freddie and the larger Fannie Mae.
``Home prices have declined and have hurt them as has the decrease in home sales,'' said Credit Suisse Group's, Moshe Orenbuch, the top-ranked analyst covering the company. ``What you need for this stuff to work its way through is for homes to get through the foreclosure process and be sold.''
Orenbuch, based in New York, has an ``underperform'' rating on Fannie and Freddie.
`Remain Committed'
Freddie has plunged 76 percent this year in New York trading on concern the company may not have enough capital to overcome loan delinquencies on the $2.2 trillion of mortgages it owns and guarantees. Syron, 64, agreed to raise $5.5 billion in equity though failed to complete the sale as the stock slumped.
``We remain committed to raising $5.5 billion of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate,'' Syron said in today's statement.
Freddie in November halved its dividend and sold $6 billion in preferred stock to offset writedowns and losses on mortgages it owns or guarantees. Washington-based Fannie since December has raised about $14.4 billion in preferred and common stock.
Freddie rose 52 cents, or 6.9 percent, to $8.04 in New York Stock Exchange composite trading yesterday and is down about 86 percent in the past year. Washington-based Fannie, scheduled to report earnings Aug. 8, climbed $1.77, or 15 percent, to $13.60. The stock has dropped 66 percent in the past year.
The second-quarter net loss is Freddie's fifth in the past six quarters. The company reported net income of $764 million, or $1.02 a share, in the year-earlier period.
Paulson's Plan
Fannie and Freddie, government-sponsored enterprises created by Congress to boost mortgage financing, own or guarantee 42 percent of the $12 trillion U.S. home loans outstanding. They make money by holding mortgage assets that yield more than their debt costs, and by guaranteeing bonds they create out of loans.
Paulson last month received authority for his plan to buy unlimited equity stakes in the companies and extend them financing if needed to help bolster confidence in the companies. The Federal Reserve was also given permission to lend directly to Fannie and Freddie.
Most of Freddie's losses stemmed from a surge in costs to cover foreclosures and losses on derivatives used to hedge credit and interest-rate risk. Foreclosures on properties owned by Freddie increased 20 percent in the quarter, the company said in the statement.
Credit losses were 17.3 basis points over the average total mortgage portfolio, up from 11.6 basis points in the first quarter.
Freddie has projected credit losses of 12 basis points or $2.2 billion for this year and 14 basis points or $2.9 billion in 2009. Orenbuch said he expects Freddie's credit losses to rise to 20 basis points this year and 29 basis points in 2009.
Freddie posted $4.6 billion in losses in the previous three quarters, while Fannie had $7.1 billion. Freddie's fair value was negative $5.6 billion at the end of the second quarter.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net;
Last Updated: August 6, 2008 06:33 EDT
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