Federal Home Loan Mortgage Corporation
), popularly known as Freddie Mac, is scheduled to report its
second-quarter 2014 results on Aug 6.
Freddie Mac's first-quarter 2014 earnings of $4.0 billion reflected
its 10th consecutive quarter of positive earnings. However, it was
substantially below the prior-quarter net income of $8.6 billion.
Notably, first-quarter results included post-tax legal settlement
benefit of $3.4 billion and after-tax derivative losses of $1.6
billion. However, lower net impairment expense was among the
Will Freddie Mac report better year-over-year earnings this time?
Let's see how things have shaped up for this announcement.
Factors to Influence Q2 Results
The company doesn't expect maintaining the earnings level it
achieved in the past few quarters. First-quarter results have
benefited from a significant rise in housing prices while the 2013
financial results were substantially supported by release of the
deferred tax asset valuation allowance. But housing prices remained
soft beginning second-quarter 2014 which may adversely impact net
During the second quarter, Freddie Mac along with its conservator -
Federal Housing Finance Agency ('FHFA') - reached settlements with
The Royal Bank of Scotland Group plc (
), Barclays PLC (
) and First Horizon National Corp. (
). These settlements relate to the 18 PLS (private-label
securities) lawsuits that FHFA filed in 2011. We believe such
settlements will contribute to the company's net income to some
On the other hand, earnings may be negatively impacted by reduction
in Freddie Mac's mortgage-related investments portfolio. The
reduction is as per the requirement of FHFA and the Purchase
Agreement with the Treasury.
Freddie Mac currently holds a Zacks Rank #2 (Buy).
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