Freddie posts 4th straight quarterly loss and slashes dividend

By Al Yoon

NEW YORK (Reuters) - Freddie Mac (FRE.N), one of the major players in the U.S. mortgage market, on Wednesday posted its fourth straight quarterly loss as it braced for a prolonged housing market slump by setting aside twice as much money for bad loans and cutting its dividend by at least 80 percent.

The worse-than-expected results came just three weeks after the Treasury orchestrated a Congressional rescue plan to prop up the U.S. No. 2 provider of residential mortgage funding and its rival Fannie Mae (FNM.N).

Freddie Mac's chief financial officer Buddy Piszel reiterated that the company has adequate capital, and said it can wait for "choppy" market conditions to improve before raising capital, which could exceed $5.5 billion.

For the second quarter, McLean, Virginia-based Freddie posted a loss of $821 million, or $1.63 per share, compared with a profit of $729 million, or 96 cents per share, in the same quarter a year earlier.

That included the first loss from its holdings of subprime and other risky loans, which formed a significant part of its $2.8 billion in realized and anticipated losses stemming from the steepest U.S. housing downturn since the Great Depression.

The company more than doubled its provisions for loan losses to $2.5 billion since the first quarter, marking the fourth increase in as many quarters. All credit-related expenses surged to $2.8 billion from $1.4 billion in the previous period and $463 million a year earlier.

"Credit-related expenses were far higher than what guidance had been," said Rajiv Setia, a strategist at Barclays Capital in New York. Barclays was expecting about $2 billion, he said, adding "that was on the high side" of analyst estimates.

FOURTH STRAIGHT LOSS

The second-quarter loss follows a $151 million loss in the first quarter and brings its cumulative loss over the past four quarters to more than $4.6 billion.

Piszel told Reuters it was still reasonable to expect a housing market recovery by early 2009, but "we have to prepare for a stress condition that looks worse than that."

Richard Syron, Freddie Mac's chief executive officer, said the company revised its expectations for home price declines that have wreaked havoc on foreclosures to 18 percent to 20 percent from peak-to-trough, from 15 percent in a previous assumption. The numbers are based on Freddie Mac's own model.

"Today's challenging economic environment suggests that the housing market is far from stabilizing," Syron said on a conference call with analysts and investors. "We now think that we are halfway through the overall peak-to-trough decline."

Freddie Mac shares plummeted by more than 19 percent to $6.49 at the close of trading in New York. The stock is some 90 percent below its 52-week high of $66.65 set last August.

Freddie Mac and Fannie Mae faced a storm of stock selling last month as investors speculated the companies would fall short of the capital needed to offset losses sustained from delinquent mortgages and help stabilize the housing market.

The turmoil led U.S. Treasury Secretary Henry Paulson, in concert with Federal Reserve Chairman Ben Bernanke, to arrange emergency measures that bolstered federal backing for the government-sponsored enterprises.