Fannie Mae Spanked by $2.2 Billion Loss
Fannie Mae
( FNM) posted a huge first-quarter loss on Tuesday that caught Wall Street off guard, and the government-sponsored home finance giant painted a grim picture of the U.S. housing market.
The company said it will raise $6 billion in fresh capital, a move federal regulators have demanded, and slashed its quarterly dividend payments by 29% to preserve cash. It also reported that its loan-loss provision soared to $5.2 billion from $249 million, as CEO Daniel Mudd said he doesn't expect a real recovery in the U.S. housing market before 2010.
The largest buyer of U.S. home loans reported a loss for the quarter of $2.19 billion, or $2.57 a share, compared with the earnings of $961 million, or 85 cents a share, it recorded for the same period last year. Revenue climbed 28% to $3.78 billion.
The bottom-line results missed expectations on Wall Street by a long shot, with analysts expecting a loss of 81 cents a share, according to consensus estimates reported by Thomson Reuters. Top-line results, however, beat expectations, with analysts, on average, forecasting revenue of $1.26 billion for the quarter.
Cramer: Fannie Packs a Value Punch |
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Fannie is suffering at the hands of a nasty downturn in the U.S. housing market, where prices are recording their largest declines on record since the Great Depression. The mortgage crisis has led to a rash of defaults on home loans in markets around the country, which has in turn provoked a credit crisis on Wall Street and a loss of confidence among investors. Investment banks like
Citigroup
(C) - Get Report
,
Merrill Lynch
( MER) and
Lehman Brothers
( LEH) have posted billions in losses on investments tied to the mortgage market.
Meanwhile,
Bank of America
(BAC) - Get Report
, in a Securities and Exchange Commission filing last week, said it hadn't yet decided whether it will take on certain mortgage debt from
Countrywide Financial
( CFC) when the bank completes its acquisition in the third quarter.
Fannie shares were shedding 4.7% to $26.96 in recent trading.
Stocks headed lower after Tuesday's opening bell as traders digested Fannie's results and their implications for the broader economy. Fannie's counterpart,
Freddie Mac
( FRE) will report results next week, and it also is expected to show big losses.
Fannie's results included $4.4 billion in losses on mortgage-related securities and $3.2 billion in credit-related expenses due to higher charge-offs amid higher defaults and average loan-loss severities.
The company said it expects "severe weakness in the housing market to continue in 2008," and that will "lead to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in U.S. residential mortgage debt outstanding."
To cope with its predicament, Fannie said it will cut its common stock dividend to 25 cents a share from 35 cents a share, starting in the third quarter. That will free up an estimated $390 million a year.
Fannie and Freddie both were recently embroiled in massive accounting fraud scandals, resulting in tightened oversight restrictions from the Office of Federal Housing Enterprise Oversight, the federal regulator charged with monitoring the companies. Now, lawmakers are loosening those restrictions and calling for both companies to play a larger role in helping to stabilize the housing market.
OFHEO on Tuesday said it would lift a consent order it placed on the company two years ago and lower the company's capital reserve requirement to 15% from 20% after the money is raised.