Freddie Mac posts first loss in four years due to accounting associated with use of derivatives; Does not need a Treasury draw down
- $475 Million Net Loss and $501 Million Comprehensive Loss; No Draw Needed From U.S. Treasury
- $4.2 Billion Year-to-Date Net Income and Comprehensive Income
- $96.5 Billion Returned to Taxpayers To Date.
- $1.5 billion (after-tax), approximately, was driven by the fair value losses on derivatives used to hedge the company's interest rate risk. However, significant GAAP earnings volatility can occur as the derivative instruments are measured at fair value each period while certain hedged assets and liabilities are not.
- $0.6 billion (after-tax), approximately, of the comprehensive loss was the result of credit spread changes on various assets and liabilities measured at fair value.
- In the second quarter of 2015, the comparable result was an estimated $0.7 billion (after-tax) gain.
- Net Worth of $1.3 Billion; No Draw Request or Dividend Obligation Under the Purchase Agreement
- The company has returned $96.5 billion to taxpayers and drawn $71.3 billion from the Treasury.
- The amount of available funding remaining under the Purchase Agreement is unchanged at $140.5 billion.
- "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-to-market 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 the opposite result with a $1.5 billion positive contribution to earnings as rates rose significantly.".
- "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."