Freddie Mac Reports Fourth-Quarter Loss, Boosts Buyback
Mortgage financier Freddie Mac reported a fourth-quarter net loss Friday, as a decline in long-term interest rates affected the value of its loan assets. But the company said full-year profit rose from a year ago and announced plans to boost its share repurchase program.
The company posted fourth-quarter net loss of $480 million versus a profit of $684 million in the last three months of 2005.
For full-year 2006, net income increased to $2.2 billion, or $2.84 per share. from $2.1 billion, or $2.75 a share, but the company took a $1.03 billion charge during the second half of 2006.
The latest results were preliminary as the company has not released timely financial reports since an accounting scandal in 2003. Freddie has said it plans to return to timely financial reporting in the first half of this year.
Its business is sensitive to interest rate fluctuations, and executives have said that returns would be weighed down by a decline in long-term interest rates that has followed the Federal Reserve's decision to keep interest rates on hold since an increase in June.
Higher interest rates reduce the chances that homeowners will prepay their mortgages and so preserve the value of Freddie's assets.
Uneven earnings over the year was "a tale of two cities," said chief operating officer Eugene McQuade.
"The first half of the year, (interest rates) were favorable. The second half, they worked against us. For the year they balanced out relatively well," McQuade said.
For all of 2006, Freddie's mortgage guarantee business grew by 10.6% to about $1.5 trillion.
The growth came despite a "challenging year for housing and mortgage finance," said chief executive Richard Syron.
The housing finance sector has been shaken in recent weeks with increased mortgage delinquencies, particularly among high-risk subprime borrowers. Delinquencies have helped drive over 20 subprime mortgage lenders out of business.
The company boosted administrative and technology spending by $100 million in 2006 to upgrade internal controls. Freddie Mac is under regulatory scrutiny and continues to improve internal controls after its accounting problems.
The company plans to repurchase up to an additional $1 billion in common stock in conjunction with an issuance of up to $1 billion in preferred stock.
Shares fell 22 cents to $62.02 in early Friday trading on the New York Stock Exchange.