Freddie Mac Was Just Kidding

Originally Published In the News May 14, 2008 12:25 PM
____________________

Freddie Mac’s (FRE-NYSE) stock is lifting following the earnings release; a dilutive capital raise and vow to maintain the dividend seem to driving the stock, at least today. Not all is good, however:

Freddie said Wednesday its first-quarter earnings beat Wall Street expectations, but it also reported that the “fair value” of its net assets fell to negative $5.2 billion at the end of March from $12.6 billion at the end of December. That reflected a drop of nearly $32 billion in value for its mortgage assets and credit guarantees that did not affect the company’s net income.

The company, which is viewed by investors as having the implicit backing of the U.S. Treasury, announced it will raise $5.5 billion in fresh capital by selling stock, and its government regulator will lower the amount of surplus capital it’s required to hold to protect its balance sheet. Freddie said in March it would not have to raise more capital. TSC

Yes, management claimed two months ago that they did not need to raise more money, but were just kidding.

If you believe them, expect to see 15-20% revenue and fee derived, in part, from higher GSE fees; and expect interest income to grow 40-50% as from an acceleration in their portfolio growth as their main regulator relaxes their capital requirements.

The stock was up nearly 10% at one point today on the bad news; longs and shorts continue to pummel each other in the GSE stocks.

Accounting Changes Hide Freddie’s Flaws
The Street.com

Comments:

<< Back to main