- WASHINGTON (AFP) -- Freddie
Mac, the government-chartered mortgage finance giant, acknowledged Friday
that it understated profits by five billion dollars to hide volatility
associated with its complex financial deals.
-
- The restatement of the results of recent years followed
a top-level management shakeup and federal probe into accounting practices
at the stockholder-owned firm chartered by Congress to help pump liquidity
into the housing market.
-
- While the scandal differs from that of firms which overstated
earnings, it has highlighted concerns about how the company uses derivatives,
or complex financial contracts, to hedge against changes in interest rates,
and whether it is subject to adequate regulatory oversight.
-
- The restatement added 4.4 billion dollars to profits
for the 2000-2002 period and 600 million for the period prior to 2000.
-
- But it also showed considerable volatility in earnings
that had not been disclosed, with the firm's 2001 net profit one billion
dollars lower than reported "primarily due to unrealized losses on
derivatives not in hedge accounting relationships," according to a
statement.
-
- The restatement also boosted the "core capital"
of the company by 5.2 billion dollars.
-
- Freddie Mac had a mortgage portfolio of 1.311 trillion
dollars at the end of 2002, and because of its size can impact stock and
bond markets.
-
- Prosecutors and regulators are investigating the firm's
accounting. The company recently fired its president for failing to cooperate
with auditors investigating its accounts, and it replaced the chief financial
officer and the chief executive.
-
- But the company said Friday's restatement was a move
toward greater transparency.
-
- "The restatement is a significant step in Freddie
Mac's progress toward achieving accurate and timely financial reporting
and controls," said Shaun O'Malley, chairman of Freddie Mac's board
of directors.
-
- "Freddie Mac completed this restatement while maintaining
our business momentum and delivering on our congressional mandate to lower
mortgage costs for America's homeowners."
-
- The financial rating service Fitch reaffirmed Freddie
Mac's top AAA long-term credit rating despite the restatement.
-
- "Although Fitch was disappointed by the necessity
of a large, multi-year restatement, ... we are encouraged by Freddie Mac's
commitment to addressing corporate governance and control issues,"
the rating firm said.
-
- Fitch said it was also "encouraged that the company's
overall risk profile did not change as a result of the restatement process."
-
- Standard and Poor's also kept its credit rating unchanged,
citing "the continued strong operating performance of the company's
core mortgage business, which was not affected throughout the restatement
period."
-
- Freddie Mac shares rallied in early trade, but closed
Friday with a slender gain of 0.05 percent at 55.67.
-
- Freddie Mac was created in 1970 to boost home ownership
by buying individual mortgages from lenders and then repackaging them into
securities that can be sold to investors.
-
- Although Freddie Mac and similar government-chartered
finance firms have no explicit federal guarantee, their credit ratings
are high because of an expectation that the federal government would cover
any shortfalls.
-
- COPYRIGHT 2003 Agence France-Presse. All rights reserved.
-
- http://www.menafn.com/qn_news_story.asp?
- StoryId=Cp72B0eientqYmKzYzwrKAwvnywnbzg1PD
|
