Fannie Mae to pay treasury US$5.5b after 4th quarter profit

[WASHINGTON] Fannie Mae on Friday said it earned US$5 billion in the fourth quarter, doubling its profits from a year earlier, driven in part by gains on derivatives the company uses to hedge risk.

The profit means the Washington-based mortgage-finance giant will send US$5.5 billion to the US Treasury in March, the company said Friday.

Fannie had net income of US$5 billion in the fourth quarter, compared with US$2.5 billion in the same period in 2015, according to a regulatory filing.

Net interest income, which includes the fees the company charges to guarantee mortgages, was US$5.8 billion compared with US$5.1 billion, it said in the filing.

The company said its earnings were driven in part by a rise in long-term interest rates. The rise bolstered the value of derivatives that it uses to hedge interest-rate risk.

Friday's report brought Fannie's earnings for 2016 to US$12.3 billion, compared with US$11 billion in 2015. The company's earnings, along with those of competitor Freddie Mac, have been relatively stable over the past few years, after huge swings during the financial crisis and recovery. In 2013, Fannie reported a profit of US$84 billion, as it reversed crisis-era writedowns of deferred tax assets.

Freddie Mac on Thursday said it earned US$4.8 billion in the fourth quarter, compared with US$2.2 billion in the same period a year earlier.

The government took over Fannie and Freddie in 2008, eventually sending them bailout money of US$187.5 billion. Fannie's portion of that was US$116.1 billion, and after March's payment, Fannie will have paid the US Treasury US$159.9 billion.

Under the terms of the company's bailout agreements, the companies send nearly all their profits to the US Treasury but don't pay a dividend in times of losses. The companies also must reduce their capital buffer each year. This year, the companies have a buffer of US$600 million each and by next year, they won't have a buffer at all, meaning that any losses would require a taxpayer draw.

The companies have a combined US$259 billion available from the US Treasury if needed.

BLOOMBERG