Freddie Mac To Slash Dividend To Make Up For Loss
Freddie Mac posted its fourth quarterly loss this week and is waiting for the onslaught from the prolonged housing crisis to hit them hard. In order to prepare themselves for this they have set aside twice as much money for bad loans and have made plans to cut their dividend by almost 80%.
The loss has come only three weeks after the U.S. government created an effort to prop up the second biggest provider of U.S. residential mortgage funding and its rival Fannie Mae, Freddie Mac affirmed a commitment to increase fresh capital.
Freddie Mac’s chief financial officer repeated that it continues to maintain a surplus over regulatory capital requirements, and said the company can wait for “choppy” market conditions to improve before raising capital, which could exceed $5.5 billion. 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.
That included the first loss from its holdings of subprime and other risky loans, which formed a significant part of its $2.8 billion in realized and anticipated losses stemming from the steepest U.S. housing downturn since the Great Depression.
“Credit-related expenses were far higher than what guidance had been,” said Rajiv Setia, a strategist at Barclays Capital in New York. Barclays was expecting about $2 billion, “and that was on the high side” of analyst estimates, he said. It was not immediately clear whether the loss was directly comparable with the average estimate among Wall Street analysts for a loss of 28 cents per share, according to Reuters Estimates.