Freddie Mac posted a smaller-than-expected quarterly loss on Wednesday and the second-biggest U.S. home-financing company said it would raise capital to expand its business, sparking a rally in its shares.
Freddie Mac narrowed its losses in the first quarter as a result of a change in how it accounts for the mortgage payments it guarantees. That helped offset deeper credit losses suffered as more borrowers defaulted on loans.
Investors snatched up Freddie Mac shares after Chief Financial Officer Buddy Piszel said the company has "greatly reduced" the risk of losing money, freeing up the new capital to expand its business. The company also said it doesn't expect further dividend cuts.
The results showed Freddie Mac has strengthened its ability to support the crumbling U.S. housing market that many economists say is tipping the economy into recession.
Last week, rival government-sponsored enterprise, Fannie Mae, reported a massive loss and cut its dividend. The two own or guarantee nearly half of all U.S. mortgages.
The result "wasn't worse than expected and raising capital is a good thing" for growth, said Malcolm Polley, chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania. "It means Freddie's business will be able to expand and it will be used to put some sort of backstop to this mess we are in. And, the government is behind them."
The McLean, Virginia-based company said its net loss widened to $151 million, or 66 cents per share, from $133 million, or 35 cents per share loss in the same period a year earlier. It is coming off a record $2.5 billion loss in the fourth quarter.
Wall Street analysts expected Freddie Mac to post a net loss of $1.57 per share in the first quarter, according to Reuters Estimates.
Reuters
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