Published: August 6 2008 13:59 | Last updated: August 6 2008 14:41
Freddie Mac slipped to a deeper net loss in its second quarter and revealed plans to slash its dividend as its credit losses doubled because of rising delinquency rates and higher foreclosures.
Freddie recorded a loss of $821m, or $1.63 a share, in the second quarter compared with a $151m, or 66 cents a share, loss in the previous quarter. The loss is its fifth in the last six quarters.The company made a profit of $729m in the same quarter a year ago, and revenues have fallen 28 per cent to $1.69bn since then.
Richard Syron, chief executive, said he still planned to raise capital even after Hank Paulson, the Treasury secretary, stepped in to bail out the company and larger rival Fannie Mae. The two giant mortgage financiers have taken billions of dollars of mortgage losses.
Freddie Mac and Fannie Mae, created by Congress to increase mortgage financing, own or guarantee 42 per cent of the $12,000bn in outstanding US home loans. The companies have massively expanded their role in the mortgage industry in the wake of the subprime crisis, after many other lenders went out of business or dramatically scaled back their mortgage operations.
Freddie shares fell 14.5 per cent to $6.87 in early Wall Street trading. Fannie, which is scheduled to report earnings later this week, dropped 11 per cent to $12.06.
Credit losses doubled to $2.8bn, while the company wrote down the value of subprime and Alt-A securities by $1bn.
It plans to reduce its quarterly dividend to 5 cents or less a share from 25 cents a share.
Congress last month extended authority to the US Treasury to buy unlimited equity stakes in Fannie and Freddie and offer them financing to bolster confidence after their stock price plummeted. The Federal Reserve was also given permission to lend directly to them.
Freddie said that its estimated regulatory core capital was $37.1bn at the end of the quarter, about $8.4bn above its statutory minimum requirement, and $2.7bn above the 20 per cent mandatory surplus applied by its regulator.
“We are capitalised above regulatory requirements and we continue to have open access to the debt markets,” said Buddy Piszel, chief financial officer.
“Freddie Mac was created to ensure the continued flow of funds to America’s homebuyers, and we are pleased to be fulfilling that important mission,” Mr Syron added. ”At a time of severe stress in the housing and credit markets, we are successfully providing critical liquidity and stability.
“We remain committed to raising $5.5bn of new capital and will evaluate raising capital beyond this amount depending on our needs and as market conditions mandate.”
Copyright The Financial Times Limited 2008
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