(Recasts with outlook on tax change; adds quote)
By Richard Leong
Feb 17 U.S. mortgage finance provider Fannie Mae
said on Friday it will pay the Treasury $5.5 billion
in dividends in March, but warned that it would face losses and
again require taxpayer support if President Donald Trump's
pledge to slash corporate taxes comes to fruition.
A significant cut in corporate tax rates, from the current
marginal federal rate of 35 percent, would result in Fannie
having to write down its deferred tax assets, according to the
If the write-down were greater than its capital, Fannie
said, it would have to draw on its credit line with the U.S.
Treasury Department, as occurred during the global financial
crisis more than eight years ago.
"Under applicable accounting standards, a significant
reduction in the U.S. corporate income tax rate would require
the company to record a substantial reduction in the value of
its deferred tax assets in the quarter in which the legislation
is enacted," Fannie Mae said in a statement on its 2016 results.
Fannie's quarterly dividends stemmed from the $5.04 billion
in net income in the fourth quarter, which lifted its
annual income to $12.31 billion in 2016 and its total payments
to the federal government to $159.9 billion.
The agency's 2015 net income was $10.95 billion.
Other companies with tax-deferred assets face a similar
predicament as Fannie and its sibling, Freddie Mac,
but they would have enough capital to offset any write-down.
Fannie and Freddie, however, have been required to reduce
their capital reserves under their conservatorship with the
Fannie's capital reserves were $600 million at the end of
2016 but are expected to be nil in 2018. They were dwarfed by
Fannie's deferred tax assets, which stood at $33.53 billion at
the end of 2016.
Analysts said, however, that investors would take a large
tax-related write-down in stride because it would a one-time
"We think most in the market will understand the one-time
nature of large write-downs, such as to deferred tax assets if
corporate tax rates fall," FTN Financial's interest rates
strategist Jim Vogel wrote in a research note.
The Treasury took Fannie and Freddie into conservatorship in
September 2008 as the two mortgage companies suffered heavy
losses from soured mortgage investments.
The firms, which guarantee home loans and issue
mortgage-backed securities, drew $116.1 billion and $71.3
billion in funds, respectively, from the Treasury to cover
Under conservatorship, the Treasury holds special senior
preferred stock in the agencies that pay dividends quarterly.
Freddie said on Thursday it will pay $4.5 billion in
dividends to the Treasury next month, bringing its cumulative
payment to $105.9 billion.
(Reporting by Richard Leong; Editing by Grant McCool and Dan