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The Earnings Deterioration Report

Recent earnings activity, reports

March 23, 2009


photo of Patrick Crowley

Quarterly losses at some of the nation's government sponsored enterprises exceeded $50 billion and were more than twice that for all of 2008. Also struggling with earnings are U.S. mortgage insurance companies.

Freddie Mac lost a whopping $50.1 billion last year, deteriorating from a $3.1 billion loss during 2007, the GSE announced. Last year's net included a loss of nearly $23.9 billion in the fourth-quarter, better than the $25.3 billion third-quarter loss but much worse than the $2.5 billion fourth-quarter 2007 loss.

"Losses were driven primarily by net mark-to-market declines on the company's derivative portfolio, guarantee asset and trading securities; increased credit-related expenses; and security impairments," Freddie said in the March 11 statement.

Secondary cousin Fannie Mae reported a fourth-quarter 2008 loss of $25.5 billion and a full-year 2008 loss of $58.8 billion.

Six of the 12 Federal Home Loan Bank's that have released unaudited earnings lost money in the fourth quarter. The companies are also GSEs and are owned by their member institutions.

The FHLB of Dallas lost $68 million in the quarter but earned $79 million for the year. In the fourth quarter of 2007, the bank earned $75 million. The bank blamed the fourth quarter loss on "derivatives and hedging activities."

Over at the FHLBank Seattle, a $241 million fourth-quarter 2008 loss and $199 million for the full year was reported due to "distressed prices" and "other-than-temporary impairment charges" of mortgage-backed securities." The Pittsburgh FHLB lost $188 million in the quarter and $91 million for all of 2008, while the Chicago FHLB warned its members that it expects to record a net loss of $119 million for last year.

Fourth-quarter losses were $232 million at the FHLBank Boston, while full-year losses were $73 million. In 2007, the bank earned $198.2 million. The bank blamed "the unprecedented nationwide deterioration of home prices combined with the ongoing recession" for its losses.

San Francisco's FHLB had a loss of $103 million in the latest quarter, compared with a $231 million profit during the fourth-quarter 2007. For the year, the bank earned $461 million, compared to $652 million in 2007. In Topeka the FHLB lost $63 million in the fourth quarter. For the year, it earned $28 million compared to earnings of $150 million in 2007.

In all, aggregate losses at the nine GSEs totaled $50.3 billion during the fourth quarter and $108.8 billion for the whole year.

But at least three GSEs reported profits.

The Cincinnati FHLB posted net income of $236 million for 2008 and $56 million for the fourth quarter, compared with $269 million and $66 million during the same periods in 2007. The bank said lower net income was primarily the result of declining short-term interest rates.

The Indianapolis FHLB reported that fourth quarter earnings came in at $45 million, compared to $38 million for the last quarter of 2007. Full-year net income increased to $185 million from $122 million in 2007.

Finally, the FHLB of Des Moines made $127 million in 2008, improving from $101 million in 2007. For the fourth quarter it earned just $2 million compared to $29 million for the same period in 2007.

The Federal Deposit Insurance Corporation said Friday that institutions it insures made "significant amendments" to income and capital numbers originally reported on Feb. 26. The revisions led the FDIC to increase reported fourth-quarter losses to $32.1 billion from $26.2 billion. Full-year losses were increased to $16.1 billion from $10.2 billion.

A detailed analysis and stress test on asset- and mortgage-backed securities owned by U.S. Central Federal Credit Union of Lenexa, Kan., led the institution to warn about an unaudited loss of $1.1 billion. While the NCUA infused $1 billion into the corporate credit union, the regulator wound up placing the institution in conservatorship on Friday.

Also experiencing problems is Austin, Texas-based Guaranty Financial Group, which announced on March 18 that it has delayed the filing of its 2008 annual report with the Securities and Exchange Commission. Guaranty said it is trying to determine the value of its mortgage-backed securities it holds and if it will need more cash.

Guaranty Financial also revealed it expects to report a loss of $444 million for 2008. In 2007 the company earned $78 million.

United Guaranty Inc. had a $1.3 billion loss on its first lien business last year compared to a loss of $0.2 billion in 2007, according to a March 13 SEC filing. United is the mortgage insurance division of struggling American International Group.

Another mortgage insurer, PMI Group Inc., narrowed its fourth quarter loss to $0.2 billion from $1.0 billion in the fourth-quarter 2007, a March 16 announcement said. For all of 2008 the company lost $0.9 billion -- about the same as in 2007.

PMI blamed the results on "losses in our U.S. mortgage insurance operations, financial guaranty and international operations segments."

Patrick Crowley is a feature journalist for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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