Freddie Mac Profit Fell 52% in ‘03; Future Results to Be Delayed

U.S. mortgage finance provider Freddie Mac, struggling to straighten out its books and reputation after an accounting scandal, Wednesday reported that its 2003 profit fell nearly 52%.

The government-sponsored mortgage enterprise delayed 2003 earnings reports after restating earnings through 2002 in November. The company said it needed time to rebuild its accounting systems after the restatement and had committed to releasing 2003 earnings by Wednesday.

Freddie Mac earned $4.9 billion last year, or $6.79 a share, down from $10.1 billion, or $14.18, in 2002. Analysts were expecting a 2003 profit on average of $5.90 a share.

Reflecting the aftermath of the company’s $5-billion restatement -- which led to a $125-million penalty from regulators and the replacement of senior management -- Freddie Mac will not report 2004 results until the end of March 2005.

Company executives also could not provide details about when the enterprise will resume regular quarterly financial reporting or make good on a pledge to file financial reports with the Securities and Exchange Commission.

Acknowledging investor frustration, Freddie Mac executives promised briefings about the company’s business and accounting repairs at least quarterly starting in October.

But a senior Bush administration official expressed disappointment at Freddie Mac’s slow financial recovery.

“We believe it’s past time for Freddie Mac to fulfill their commitment to meet the highest standards of disclosure by filing with the Securities and Exchange Commission,” Assistant Treasury Secretary Wayne Abernathy said.

Stock traders showed little reaction. Freddie Mac shares closed up 11 cents at $63.30 on the New York Stock Exchange as investors responded favorably to the Federal Reserve’s decision to boost interest rates.

Ratings firms Standard & Poor’s and Moody’s Investors Service said their debt ratings for Freddie Mac were unchanged.

Freddie Mac does not lend directly to home buyers but buys mortgages from lenders and repackages them as securities for investors or holds them in its own portfolio.

It said the 2003 decline in net income was because of a drop in the value of derivatives it uses to hedge against interest rate swings, and warned of more fluctuations.

“To the extent changes in interest rates continue to be significant, our overall net income will remain volatile,” Freddie Mac said.