Freddie Mac Plans $2B Stock Buyback

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Freddie Mac, the second-largest source of money for American home loans, said yesterday its board authorized the repurchase up to $2 billion of stock.


Freddie Mac shares rose 3.9%, or $2.15,to $57.71 at 12:38 p.m. in New York Stock Exchange composite trading.


“This is a first step in managing our capital position to generate better value for shareholders, while at all times remaining well capitalized and well positioned to take advantage of market opportunities,” Chief Executive Officer Richard Syron said in a statement.


Freddie Mac has been accumulating capital as it overhauled its accounting and financial reporting systems, after its failure led to a three-year, $5 billion earnings restatement in 2003. The company has also slowed portfolio growth to less than half that seen in 2003 as the cost of mortgage assets it buys became expensive relative to the interest it pays on its debt.


The company in June held $36.14 billion in capital, a 50% surplus over the minimum as established by Congress, its federal regulator said last week. Freddie Mac has always satisfied a requirement to hold a 30% capital surplus, imposed by the regulator in 2003 after the magnitude of the company’s accounting manipulation became known.


The approval to buy back up to 5% of the company’s outstanding shares comes after the stock lost more than a fifth of its value this year. Shares fell amid speculation a push in Congress to strengthen regulation of Freddie Mac and Fannie Mae would cripple their earnings by forcing reductions in their combined $1.5 trillion portfolios.


Freddie Mac profit fell 60% in the first half of 2005 amid a decline in net interest income and non-cash losses on the value of financial contracts used to protect the portfolio against swings in interest rates.


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