Wednesday, March 11, 2009

Freddie Mac Posts $23.9 Billion Loss, Requests $30.8 Billion From Treasury

Perhaps the best thing that can be said about Freddie Mac's $23.9 billion loss is that it was positively paltry compared to AIG's $61 billion blow-out quarter.  While some might use the term "blow-out" to refer to an unexpectedly positive surprise, I like to use the floor trading vernacular, where a "blow-out" refers to a catastrophic loss.  In both AIG and Freddie Mac's case, the losses truly were catastrophic.  Were it not for government support, both AIG and Freddie would be a distant memory to the 25% of the US population that might be peddling apples from their apple carts today.  Fortunately, Freddie can continue the incineration of capital because it can probably get an unlimited supply from the Treasury.  Or unfortunately, depending on your perspective.

For all of 2008, Freddie reported a loss of $50.1 billion, compared with a year-earlier loss of $3.1 billion.  The losses over the past two years exceed the total of about $42 billion earned by the company from 1971 through 2006.  The latest capital infusion will increase the government's holdings of senior preferred stock in Freddie to $45.6 billion.  Freddie will pay the Treasury a 10% dividend, or $4.6 billion.  Freddie's annual profit has exceeded that amount only twice since 1971.  Translation?  Game over.  Is it any wonder that David Moffett, who served as Freddie's CEO just quit?  I wouldn't want to be delivering this kind of news indefinitely either.  But with sentiment turning ridiculously positive in the past two days, I'm sure Freddie's earnings are bound to inspire another 6% rally in the S&Ps.   

1 comment:

eyepatchman said...

Hi all,

Here's an interesting one for you.

An analysis of the current economic crisis we are all unfortunately facing but looked at from a slightly different perspective.

This analysis looks at past banking crises and how they have effected various aspects of the economy.

It is titled The Banking Crisis - Where are we now? (follow the link should you be interested) and has particularly interesting points about how the previous banking crises has effected assets including property prices.