Freddie Mac on Wednesday posted its fourth consecutive quarterly loss, set plans to slash its common stock dividend and warned of more difficulty ahead amid the steepest U.S. housing market slump since the Great Depression.
The second-biggest provider of U.S. residential mortgage funding also affirmed a commitment to raise $5.5 billion in additional capital, but it provided no immediate details of its plan. It repeated that it continues to maintain a surplus over all regulatory capital requirements.
For the second quarter, McLean, Virginia-based Freddie Mac reported a loss of $821 million, or $1.63 cents per share, compared with a profit of $729 million, or 96 cents per share, a year earlier. It follows a $151 million loss in the first quarter and brings its cumulative loss over the past four quarters to more than $4.6 billion.
"While we expect continued housing and economic weakness will affect our overall performance this year, we continue to maintain a surplus over all regulatory capital requirements," Chairman and Chief Executive Richard Syron said in a statement. "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."
Freddie Mac and rival Fannie Mae faced a storm of stock selling last month as investors speculated the companies would fall short of the capital needed to offset losses sustained from delinquent mortgages. The turmoil led U.S. Treasury Secretary Henry Paulson, in concert with U.S. Federal Reserve Chairman Ben Bernanke, to arrange emergency measures that bolstered government backing for the companies.
DIVIDEND SLASH
To help preserve capital, Freddie said it would slash its quarterly dividend, pending board approval, by 80 percent to 5 cents a share from 25 cents a share.
The companies own or guarantee more than $5 trillion in mortgages, or nearly half of all U.S. home loans.
Freddie said revenue rose by more than 10 percent from the first quarter to $1.69 billion, including a increase of 92 percent in net interest income to $1.5 billion.
Total credit losses, meanwhile, rose to $810 million from $528 million in the first quarter.
Freddie Mac shares closed Tuesday at $8.04, up 6.9 percent on the session amid the biggest one-day gain for the benchmark Standard & Poor's 500 in four months. While the stock has more than doubled from its early-July low of $3.89, it remains nearly 90 percent below its 52-week high of $66.65 set last August.
Al Yoon
Reuters
Wed, 06 Aug 2008 09:35 UTC
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As the government looses control in a manner seemingly unplanned, the fear and tension increase among the crew. Rivulets of sweat cascade down the fed’s fiduciary bodies that stoke the fires to maintain speed at all costs, for it is believed as long as the ship appears to be making way no one will panic. Crew members tear up deck planks to feed the ravenous economic boilers, but the rudder has jammed and the ship now circles endlessly in the dead of the economic night. The Captain cares little, for he will not go down with this ship. Already his personal lifeboat is being swung out on its davits. From the very beginning the plan was to wreck the vessel for the insurance it will provide; insurance that the vessel will never be a threat to the shipping owners. The lower classes of passengers are kept entertained as the shipwreck unfolds. They have no idea what is about to transpire; no idea that they will soon sink into the inky read waters of bloody destruction. And so they continue on with their daily distractions, oblivious to the reality of the situation they face. “More steam!” calls out the captain, “more steam at all cost, destroy whatever is necessary to maintain whatever speed possible!” And the crew numbly complies with the order, never realizing that the captain’s interest is not theirs. Never realizing they will not share the safety of the captain’s snug lifeboat, the crew labors on to maintain appearances even though many are aware the cause is lost. They have yet to realize the lifeboat hulls they depend on are in fact permeated with dry rot and will melt away like the delusion of safety they represent. Never give up the ship!” cries out the captain as he departs the bridge. Making his way down the deck towards his waiting lifeboat, the captain briefly stops to assure vaguely worried passengers that all is well. “The ship is quite safe” he confides, “the crew is properly maintaining the vessel.” From time to time he stops to point out the wake that seemingly indicates progress. “Look out there,” he says boastfully, “we are still making way! Would a ship about to founder still be making way?” But he knows the water is rapidly rising in the bilges. Soon it will put out the fires of progress and then there will be no such reassuring comments only dead stillness. But by that time the captain will be gone; safely sailing away, his role in the wreck will be quickly forgotten in the tumult. He looks forward to his next command for wreaking ships is quite profitable. Such destruction and mayhem has long enriched those who know where to profit when the blood runs upon the decks. And the blood will soon run into the cold, dark waters. “It’s chust business” they say, as the shippers rub their hands together in anticipation of the wreck. “You have to break a few eggs if you want to make an omelet” they say. Looking out over the dark waters from the safety of their land bound offices, the shippers ask, “Isn’t it about time for breakfast?”