Fannie Reports Record Annual Profit, Defers Decision on DTAs

Fannie Mae reported fourth-quarter net income of $7.6 billion for the fourth quarter and $17.2 billion for the full year after deciding not to recognize any deferred tax assets until the first quarter of 2013—at the earliest. Fannie recorded losses of $16.8 billion in 2011. But the secondary market agency posted profits in all four quarters of 2012.

The fourth-quarter and annual 2012 financial results were the best in the company’s history, according to Fannie executive vice president and chief financial officer Susan McFarland.

“We expect to remain profitable for the foreseeable future and return significant value to taxpayers,” McFarland said Tuesday morning in releasing Fannie’s 2012 annual financial report.

Leading up to Tuesday earnings report, there was a lot of speculation that Fannie would recognize a portion or all its DTAs in the fourth quarter. But it appears the GSE came under pressure from the Treasury Department and its regulator to postpone the release of $58.9 billion in deferred tax assets that are currently held in a valuation allowance account.

Any release of the DTAs would go directly into income and result in a corresponding increase in the GSE’s net worth.  And Fannie would end up paying Treasury a significant dividend in the quarter following the release of the DTAs.

In Tuesday’s release, Fannie signaled that it may recognize the deferred tax assets when it reports first-quarter results.

“Although Fannie Mae has not completed its analysis, the company believes that, after considering all relevant factors, it may release the valuation allowance on its deferred tax assets as early as the first quarter of 2013,” the GSE said.

Starting with first-quarter earnings, Treasury will sweep all profits reported by Fannie and Freddie Mac and leave each GSE with a net worth of $3 billion.