Chicago FHLBank 3Q Profits Dive

Earnings at the Federal Home Loan Bank of Chicago fell by 50% in the third quarter, and the bank is restating earnings because of an "accounting error," according to an unaudited financial statement filed with the Securities and Exchange Commission.The Chicago FHLBank reported net income of $24 million, down from $44 million in the third quarter of 2006. The bank previously reported net income of $50 million in the second quarter, but that has been revised to $27 million in correcting its hedging accounting for advances and consolidated obligations. The troubled bank's third-quarter report says it is engaged in "detailed negotiations" with the Dallas FHLBank regarding a possible merger. And it is developing strategic alternatives in case a merger is not possible. The third-quarter report also reiterates a previous warning that the Chicago bank "may experience losses in the fourth quarter of 2007 and 2008."