Freddie Tanks on Earnings Miss, Possible Q4 Dividend Cut

Freddie Mac was last down 15.3% to $31.75 in pre-market trading, following its report of a more than doubling of Q3 losses to $2.03 billion ($3.29/share) and warning it may have to cut its dividend by 50%. Analysts were expecting a loss of $0.22/share, on average. Freddie Mac cited a higher provision for credit losses ($1.2B) and losses on mark-to-market items ($3.6B). The company reported a Q3 loss of $715M ($1.17/share) last year. Freddie Mac said the credit losses reflect the "significant deterioration of mortgage credit as a result of continued weakness in the housing market." Furthermore, Freddie Mac said the fair value of net assets attributable to common stockholders (before capital transactions) fell by around $8.1B in Q3, compared to an increase of about $300M last year. CFO Buddy Piszel commented that over the past year the company has "begun raising prices, tightened our credit standards and enhanced our risk management practices. We also continue to improve our internal controls as we move closer to completing our remediation efforts and returning to timely financial reporting. These actions position us well to take advantage of opportunities when the current market dislocation ends." (Earnings call transcript later today). Freddie Mac said it has "engaged Goldman Sachs and Lehman Brothers as financial advisors to help it consider very near term capital raising alternatives." Freddie Mac also said it is "seriously considering" reducing its Q4 dividend by 50%. Shares of Freddie Mac lost 7.9% to $37.50 on Monday.

Sources: Press release, Bloomberg, MarketWatch
Commentary: Fannie Mae Masking High Losses With Accounting Tweak - Fortune • Regulator Irate Over NY AG's Probe of Fannie and Freddie • Fannie, Freddie, WaMu Tumble on Expanded Probe
Stocks to watch: FRE, FNM

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Comments

[Malkiel]

The market has declined on every report of mortgage-related losses, regardless of other good news, until this morning. If the market ignores Freddie's bad news and stays up, then maybe this will indicate our having crossed that line where traders will now see mortgage-related losses as routine and stop selling in response to them. That would be good news for the market going forward...