Propelled by lower interest rates and a wave of homeowner refinancings, profits at Freddie Mac, the big mortgage-finance company, jumped 25 percent in the fourth quarter of last year and 39 percent for all of 2002.
The McLean-based firm posted a quarterly profit of $1.7 billion ($2.38 a share), up from $1.36 billion ($1.87) in the year-earlier period. For the year, the company earned $5.76 billion ($7.95), up from $4.15 billion ($5.64) in 2001.
The company also noted that its new auditor, PricewaterhouseCoopers LLP, which replaced Arthur Andersen LLP, is in the process of re-auditing its financial statements for last year, 2001 and possibly 2000. The results of the re-audit, it said, are likely to "materially increase" reported earnings for those periods. The changes relate to the application of certain rules relating to accounting for derivatives. The re-audit was announced last week.
Since 2001, the company has been using new accounting rules for derivatives, as required by generally accepted accounting principles, but management has said the rules produce inconsistent results on the derivatives its uses to hedge interest rate risks.
The company therefore also releases what it calls operating earnings, which it says gives a clearer picture of the company's performance. On that basis, the company earned $3.85 billion last year, up 22 percent from the previous year's $3.15 billion.
Freddie Mac is a congressionally chartered, stockholder-owned corporation that buys mortgages from lenders to bring additional liquidity to the nation's housing markets.
The company said its total mortgage portfolio grew by $173 billion in 2002, a 15 percent increase. The surge reflected record new-loan purchases, but they were partly offset by sharply higher payoffs of older loans as homeowners refinanced to take advantage of the lower interest rates. Credit and loan losses remained low, the company said.
* AES Corp. in Arlington said it will report a $3.5 billion loss for 2002, reflecting steep write-downs on major energy facilities in Britain and Brazil, and decisions to halt construction on two U.S. power projects, in California and Florida.
The company said the charges do not jeopardize its December agreement with investors and lenders to refinance $2.1 billion in bonds and bank debt until 2005, an extension AES required to stay solvent. "This is reflecting history," said Chief Financial Officer Barry J. Sharp. "There is no impact on our existing financing arrangements."
The fourth-quarter write-downs will total $2.7 billion ($4.96 a share), leaving AES with an annual loss of $6.51 a share for 2002. Excluding the charges, the company said it expects to report a profit from recurring operations of about $550 million (78 cents).
Analysts were not surprised by the news. For more than a year, the global energy company has battled to overcome losses from power operations in drought-plagued Brazil, and from its Drax power plant in Britain, where a long-term power sales contract was canceled last year because of falling electricity prices. The collapse of currencies in Argentina, Venezuela and Brazil, where AES was heavily invested, caused its debt payments to soar.
"It's not good, but it doesn't really add to their plight," said Christopher R. Ellinghaus, a financial analyst at Williams Capital Group. "Cash is the story."
AES said the parent company's operating cash flow last year totaled $1.1 billion, slightly higher than anticipated.