|
|
AUGUST 2008 BEACON Freddie in Free FallFreddie Mac Posts Surprising Loss-It’s Fourth Consecutive
<August 6, 2008>Freddie Mac announced their fourth consecutive quarterly loss of $821 million versus a profit of $729 million one year earlier, Reuters reported today. The amount of the loss came as a surprise to most analysts and it came only a few short weeks after the government sought a measure to provide a safety net for one of the nation’s largest mortgage companies.
CFO Buddy Piszel said that the company maintains adequate financial reserves in excess of government regulatory requirements and while it may seek to increase its capital reserves, it can wait until financial markets have adequately stabilized.
Clearly, results show that the housing industry remains in crisis mode and remain in the worst downturn since the Great Depression. Freddie Mac increased its provision for loan losses to $2.5 billion.
Freddie Mac chief executive officer Richard Syron said in a conference call to analysts, “Today’s challenging economic environment suggests that the housing market is far from stabilizing. We now think that we are halfway through the overall peak-to-trough decline.”
To address the need for capital, Freddie Mac is planning to slash its dividend 80 percent from 25 cents to 5 cents per share. The company will also slow the rapid growth of its portfolio, currently at $792 billion, to conserve capital.
Analysts now anxiously await the quarterly results from the other major mortgage player, Fannie Mae who’s report is due on Friday.
 Meanwhile, doing its share to stabilize financial markets, the Federal Reserve Board’s Open Market Committee voted to keep interest rates stable at a low 2 percent. In a prepared statement, the Fed noted that economic activity in the second quarter expanded, however labor markets have softened and financial markets “remain under considerable stress.”
The Fed’s statement also noted the deadly Yin-Yang of significant downside risks to growth while at the same time upside risks of inflation remain troubling. However, the statement clearly indicates a slightly more relaxed attitude about inflation noting that the “Committee expects inflation to moderate later this year and next year…” |
|
|