Regulators have accused Fannie of deliberately flouting accounting rules and improperly excluding from its reported income changes in the value of financial contracts known as derivatives. To correct those errors, the company has estimated that it may be required to record $9 billion of previously unreported losses.
That unexpected hit left Fannie Mae with about $3 billion less capital than it is required to keep on hand as a cushion against financial trouble, according to OFHEO.
Fannie Mae, with headquarters on Wisconsin Avenue NW, has said it may have to report $9 billion in previously unrecorded losses.
(Jay Mallin -- Bloomberg News)
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In addition, the regulator has raised the bar, securing Fannie's pledge to achieve a 30 percent surplus over its minimum capital requirement.
Neither Fannie Mae nor OFHEO would say how much money Fannie Mae needs to raise or how much money it has raised so far.
However, based on a snapshot of Fannie's financial condition that OFHEO had issued as of Sept. 30, Fannie had $28.9 billion of core capital after adjusting for the hit to earnings, and it was required to have $31.8 billion. Adding the 30 percent surplus requirement left Fannie about $12.5 billion in the hole.
To fill that gap, Fannie recently sold $5 billion of preferred stock and cut its first-quarter dividend in half, a move that will save the company about a quarter of a billion dollars.
The company has a variety of options available to it as it seeks to increase its capital. Those include discontinuing purchases of its own stock, on which it spent $1.4 billion in 2003 and about half a billion dollars in the first half of 2004, said Michael D. Cohen, an analyst at Susquehanna International Group LLP.
The decision to scrap the new office project was made by Fannie's new, temporary management. Under pressure from regulators, Franklin D. Raines stepped down last month as chairman and chief executive and J. Timothy Howard stepped down as chief financial officer.
"Fannie Mae will explore other alternatives to handle our growing employee population at the appropriate time," company spokesman Greener said.
Staff writer Dana Hedgpeth contributed to this report.
