Fannie Posts $2.3B Loss, Shocks Wall Street

WASHINGTON, DC-Fannie Mae has reported a loss that took even wary Wall Street analysts by surprise. In Q2, the GSE lost $2.3 billion, or $2.54 per share. This follows its $2.2 billion loss in Q1. By contrast, in Q2 2007, Fannie Mae had registered a profit of $1.95 billion, or $1.86 a share.

Despite Fannie’s declining financials – this is the fourth consecutive quarterly loss for the GSE – its net loss for Q2 still surpassed the range the Street had been expecting: namely a loss between 68 cents a share to 97 cents per share. The news, not surprisingly, set Fannie Mae’s shares plummeting Friday morning by nearly 20% at one point, reaching $8.13 per share.

Fannie is developing a track record of larger than expected losses, Frederic Ruffy, the senior options strategist at WhatsTrading.com, a New York City-based provider of options market analysis, tells GlobeSt.com. “In the previous two quarters, the company missed badly. Last quarter, Fannie lost $2.57 per share, compared to analyst estimates for a loss of 81 cents. It suffered a loss of $3.80 per share before that, well below analyst estimates of -$1.24.”

Fannie Mae has said it will cut its dividend 86%, to 5 cents a share, from 35 cents a share. It will also slash operating costs by 10%. It blamed its Q2 performance on an increase in the provision for credit losses that more than offset higher revenue and fair value gains. “Volatility and disruptions in the capital markets became even more pronounced in July, CEO and president Daniel Mudd said in a prepared statement. “In addition, credit performance has continued to deteriorate and, based on our experience in July, we anticipate further increases in our combined loss reserves. Given this volatility and the build-up of our reserve, as well as the uncertainties inherent in the US economy and the housing market, we are taking a series of additional actions that reflect our ongoing focus on conserving and enhancing our capital, as well as managing our credit risk through the balance of this cycle.”