Freddie
Mac Request Government Aid
Government-controlled mortgage financier Freddie Mac (OBB:FMCC) posted a profit
of $577 million in Q1 and will request additional government aid to help sustain
its operations. On Thursday, Freddie reported their profit was down from a
profit of $676 million a year earlier - the decline was driven in part by larger
derivative losses, which totaled $1.06 billion, up from $427 million a year
earlier and $766 million in the previous quarter. The companies provision for
credit losses fell to $1.83 billion, down from $1.99 billion a year earlier and
$2.58 billion in Q4 thanks to slowdown in loans deemed 'seriously delinquent'.
Freddie said it will request an additional $19 million in government aid to
offset a net deficit incurred after paying $1.81 billion in dividends to the
Treasury Department. Freddie reported they saw improvement in its credit-quality
during the quarter and that the rate of single-family loans deemed seriously
delinquent was 3.51%, down from 3.58% in Q4, though the rate remains at elevated
levels because of weak home prices and extended foreclosure timelines. The
mortgage financier saw a jump in requests for lenders and mortgage servicers to
buy back soured loans that breached its representation and warranty requirements
with such requests at $3.2 billion based on the unpaid principal balance of the
loans, up from $2.7 billion at the end of 2011. In a regulatory filing in March,
Freddie said it identified two 'material weaknesses' in its financial-reporting
controls that it blamed partly on 'increased levels of employee turnover'.
During Q4, Freddie experienced a 'significant increase in the number of control
breakdowns' related to information technology, which stemmed from 'ineffective
management oversight'.
The Labor Department reported on Thursday that productivity of U.S. businesses
and workers fell less than expected in the three months through March but
dropped for the first time in three quarters. Reports show an estimate in the
decline in productivity at 0.5% for Q1, down from a revised increase of 1.2% in
Q4 which was previously reported as 0.9%. Manufacturers, which led the recovery
since the U.S. exited recession in 2009, boosted productivity by 5.9%, as output
jumped 10.8% and hours worked increased by 4.6%. During Q1, the amount of goods
and services produced, known as real output, grew at a seasonally adjusted,
annualized rate of 2.7%. Hours worked rose 3.2% as hourly compensation increased
1.5% and unit-labor costs climbed 2.0% in the quarter. Unit-labor costs reflect
how much it costs a business to produce one unit of output, such as a ton of
steel or a crate of dry goods. Hourly wages in Q1 fell 0.9%, when adjusted for
inflation. Falling real income not only lowers the standard of living, it allows
consumers less to spend and makes it more difficult to save.
Institute of Supply Management reported Thursday growth in the U.S. services
sector slowed to a six-month low in April, with a weakening pace of production,
new orders and employment. The ISM’s services sector index fell 2.5 points to
53.5%. Of the 18 industries where purchasing managers are polled, 15 showed
expansion, including retail, real estate and finance while agriculture,
forestry, fishing and hunting industry as well as mining, showed contraction.
“Business is still ahead of last year, but has leveled off a little,” said a
manager in the wholesale trade industry. Production index fell 5.3 points to
54.6%, new orders index dropped 5.3 points to 53.5% and employment index dropped
2.5 points to 54.2%.
The U.S. Labor Department reported on Thursday that the number of Americans who
filed requests for jobless benefits fell last week for the first time in a
month, down 27,000 to 365,000. Jobless claims from two weeks ago were revised up
to 392,000 from 388,000. The average of new claims over the past four weeks
moved higher by 750 to 383,500 striking the highest level seen since early
December. Continuing jobless claims decreased by 53,000 to a seasonally adjusted
3.28 million in the week ended April 21 with continuing jobless claims reported
with a one-week lag. Nearly 6.6 million people received some form of state or
federal benefit in the week ended April 14, down 85,523 from previous week. The
preliminary increase in March was the lowest in five months and fell well short
of the 246,000 average from December to February.
European Central Bank President Mario Draghi on Thursday said the bank's
Governing Council did not discuss a rate cut at its policy meeting in Barcelona.
Draghi said policy makers still see monetary policy as 'accommodative', with
nominal interest rates historically low and real interest rates at negative
levels over much of the euro area and that 'nobody would argue' that liquidity
is not abundant. Draghi said it would 'remain premature' for the ECB to begin
discussing exit strategies from its range of extraordinary measures and that the
ECB 'never pre-commits' to future moves. Draghi said there was 'no
contradiction' between euro-zone countries adopting a 'growth compact' alongside
a 'fiscal compact'. Draghi said European leaders need to push for reforms of the
product sector as well as labor markets. "We need to complete the [European]
single market [as a] very first step," he said. Labor reforms must address
distortions that have left labor markets 'unbalanced' against younger workers,
leading to rising youth unemployment.
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May 3, 2012
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