Freddie Mac, the second-largest U.S. mortgage finance company, reported a smaller loss than analysts estimated after accounting changes reduced charges by at least $2.6 billion.
Without the use of two new accounting rules, Freddie Mac would have posted a first-quarter net loss of at least $1.7 billion, analysts said, rather than $151 million.
The McLean company, which owns or guarantees about a fifth of U.S. residential mortgages, benefited from changing the way it values certain assets that aren’t traded and from being allowed to pick and choose which assets to measure.
“They put a lot of lipstick on this pig including several accounting changes that have given them a one-time step up,” said Josh Rosner, an analyst at independent research firm Graham Fisher & Co. in New York.
Shares of the government-chartered company rose more than 9 percent, gaining $2.29 to close at $27.25 yesterday on the New York Stock Exchange. Fannie Mae, its bigger competitor, gained $1.77, or 6.3 percent, to $29.89.
Freddie’s quarterly loss was larger than a loss of $133 million in the January-March period last year. The results were equivalent to a loss of 66 cents a share, compared with 35 cents a share a year earlier.
It was the third straight quarterly loss for Freddie Mac, which lost $4.5 billion in the second half of 2007.
Freddie Mac also said it would raise $5.5 billion in capital to combat rising loan delinquencies. The funds will be raised through common and preferred share sales “in the near future.”
Chief Executive Officer Richard Syron said the new accounting better reflects “the underlying performance of our business” as the market continues to deteriorate. The new accounting had a “significant positive effect,” reducing volatility in the value of the company’s $738 billion portfolio, as well as for the securities and derivatives used to hedge against credit and interest-rate risk, according to the company.
“Clearly, based on the comments and reports this morning by the real, substantive analysts who follow this company, [Wall Street] is comfortable with our accounting and reporting, and encouraged by the results we presented today,” Freddie Mac spokesman Michael Cosgrove said.
The worst housing market since the Great Depression caused Freddie Mac’s fair value of assets to drop to negative $5.2 billion from $12.6 billion in the previous quarter. Fannie Mae’s assets fell to $12.2 billion from $35.8 billion in the period.
IN THE RED
Freddie Mac continued to lose money in the latest quarter, but accounting changes helped limit the losses.
Net income (loss), in millions of dollars
2007
Q1(211)
Q2 764
Q3 (2,029)
Q4 (2,452)
2008
Q1 (151)
Source: Bloomberg News
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