The misapplication of accounting principals at Fannie Mae may wind up reducing last year's earnings by more than $10 billion.
In a Form 12b-25 late filing notification with the Securities and Exchange Commission, the Washington, D.C.-based secondary lender said it misapplied hedge accounting under Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, for some of its derivatives and expects to record an estimated net cumulative after-tax loss of approximately $8.4 billion as of Dec. 31, 2004.
Fannie also estimated another $2.4 billion in after-tax losses last year from the misapplication of Financial Accounting Standard No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities, noting it misapplied cash flow hedge accounting criteria for its mortgage commitments. The government sponsored housing enterprise estimates "the net cumulative amount of after-tax losses relating to mortgage commitments deferred in accumulated other comprehensive income...was approximately $2.4 billion as of Dec. 31, 2004."
The filing came as the company announced a new chief financial officer, Robert T. Blakely, as well as a new chief business officer, chief operating officer and a host of other executive appointments.
Blakely reportedly "oversaw the restatement and restructuring of the finance, accounting and controls functions" at MCI, formerly known as WorldCom -- infamous for being the company with the biggest accounting fraud in U.S. history. He has more than 30 years experience in finance, accounting, controls, and management, Fannie said, and was CFO of Tenneco and of Lyondell Chemical.
"Last June, I said our priorities were to...get to the bottom of our accounting issues as we work through the restatement and reaudit," said Fannie CEO Daniel Mudd in an announcement. "As we continue to make changes and progress, including the achievement of our 30 percent capital requirement, we fully recognize that we have much more to do."