Mark-to-Market Accounting Pushes Freddie Mac to $768 Million Profit in Q2

August 10, 2009 by · Leave a Comment
Filed under: Stock Market News 

According to the article this surprise profit was due to a one-time accounting gain rather than an actual turn-around in the business making it actually profitable.  The shares did react strongly, increasing a whopping 80% at the time of this writing.  These two GSE’s will most likely have to tap the Treasury for more funds and I see Ginnie Mae as the next GSE that will need a substantial taxpayer backstop in the form of more bailout money.

News (Globe St.):

VA-While there are growing signs that the economy and housing markets are hitting bottom–or at least ending the free fall it was in at the beginning of the year–the latest earnings from Freddie Mac do not fall into this category. On Friday the GSE reported–on the heels of dismal earnings from Fannie Mae–that it issued its first profit in two years, with a net income of $768 million for Q2, compared with a $9.9 billion net loss in the previous quarter.

As a result Freddie Mac would not have to draw down additional Treasury funds. Not surprisingly, shares of Freddie Mac were up 53 cents to $1.27 Monday morning–more than double its value from the week before.

However–and executives at Freddie Mac took pains to highlight this as well–the profit is due more to one-time events than any long term climb back to health. Namely, gains from the change to mark-to-market regulations, plus profits realized from derivatives, offset its losses. Credit losses registered $5.2 billion for the quarter, compared with $8.8 billion for Q1. In this case, the GSE is showing signs of health, ironically, with the slowdown in losses due to positive home price improvements.

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