Freddie Mac had quarterly loss for the first time in four years
Staff writer ▼ | November 3, 2015
Freddie Mac reported a net loss of $475 million for the third quarter of 2015, compared to net income of $4.2 billion for the second quarter of 2015.Article continues below
The company also reported a comprehensive loss of $501 million for the third quarter of 2015, compared to comprehensive income of $3.9 billion
for the second quarter of 2015.
“For the first time in four years, Freddie Mac had a net loss in the most recent quarter. This $0.5 billion loss was caused mainly by the accounting associated with our use of derivatives, whereby the derivatives are marked-tomarket but many of the assets and liabilities being hedged are not.
The resulting difference between GAAP reporting and the actual underlying economics, which has created significant GAAP income volatility in our quarterly financial statements, reduced the after tax earnings in the quarter by an estimated $1.5 billion as interest rates declined significantly†said Donald H. Layton, chief executive officer.
“In the prior quarter, we had theopposite result with a $1.5 billion positive contribution to earnings as rates rose significantly.
"Otherwise, the business had very strong fundamentals with growing volumes of guarantees and continued improving credit quality in the guarantee businesses. Partially offsetting these fundamentals were about $0.6 billion in losses caused by a large increase in credit spreads on our fair-valued assets, which are also volatile quarterover-quarter.
“Last quarter such credit spread changes generated a gain of $0.7 billion.
“Finally, as this loss was just a fraction of the $1.8 billion net worth reserve we have under the Preferred Stock Purchase Agreement, no U.S. Treasury draw was needed, so total dividends paid remains unchanged at $96.5 billion, $25 billion more than we have received.†■ What to read next
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