Freddie Mac

, trying to close the door on last year's accounting scandal, released 2003 earnings Wednesday that showed a 52% decline in profits, reflecting depreciating interest-rate hedges.

The earnings release, which was delayed to permit the mortgage-finance company to complete a restatement of prior-year earnings, shows the underlying volatility of Freddie's earnings.

Freddie got into trouble with regulators because of a series of accounting gimmicks it used to smooth out the volatility in its earnings. In the wake of the scandal, Freddie officials had said the firm's earnings would show much more volatility going forward.

For the year, the government-sponsored firm earned $4.9 billion, or $6.79 a share, down from $10.1 billion, or $14.18 a share, in 2002.

The bulk of the earnings decline was due to a $1.9 billion loss on Freddie's non-interest income line, an item that mainly represents unrealized gains and losses in the value of Freddie's massive derivatives portfolio. In 2002, the firm posted a $5.6 billion gain in the value of its derivatives, which are sophisticated financial contracts used to hedge against fluctuations in interest rates and defaults on mortgages Freddie owns or guarantees.

Freddie and its close sibling,

Fannie Mae

, heavily rely on derivatives as part of their hedging strategy.

Last November a restatement of the mortgage company's financial statements for the past three years revealed that total earnings at Freddie were understated by a total of $5 billion, as it tried to push out earnings to future quarters in order to ease the volatility.

The accounting scandal at Freddie, the nation's second-biggest buyer of mortgages, led to a number of top management firings, resignations, an overhaul of the firm's accounting practices and a $125 million fine.

The scandal also focused attention on the dominant role Freddie and Fannie play in the mortgage market. It has led calls on Capitol Hill for greater regulation of the mortgage giants. Critics contend government-chartered companies have taken on too much debt in creating a secondary market for mortgages and mortgage-backed securities, and should be reined in.

"We are making substantial progress overhauling Freddie Mac's financial reporting and accounting systems, but this process is a challenging one and more hard work is in front of us,'' said Freddie Executive Vice President Martin Baumann.

Freddie's 2003 earnings would have looked even worse compared to 2002 had it not decided to forego making a charitable contribution to its philanthropic program. In 2002, the firm made a $225 million cash donation to the Freddie Mac Foundation. Last year it didn't make any contribution.

Shareholder equity at Freddie barely budget in 2003 compared to 2002. It rose to $31.6 billion, up from $31.3 billion.

In early trading, Freddie was down 29 cents to $62.90.