Chicago FHLBank Expects '08 Losses

The Federal Home Loan Bank of Chicago expects to report a $78 million loss for the first quarter and losses in "subsequent quarters," the bank says, as it takes steps to improve earnings and reduce hedging costs on its $34.5 billion mortgage portfolio. "Although the first-quarter loss is significant, the Bank has retained earnings of $581 million at the end of the first quarter," acting FHLBank president Matthew Feldman said in a letter to members. The Chicago FHLBank warned its members several months ago to expect a loss when it files it first quarter financial report on May 7. In providing the early disclosure, Mr. Feldman also noted that the bank booked an impairment loss of $33 million on $4.5 billion in private-label subprime mortgage-backed securities that had been degraded. Management estimates the "economic loss" on the subprime MBS will be "approximately $1 million." Separately, the Office of Finance released preliminary financial results for the 12 FHLBanks, which shows consolidated earnings of $697 million in the first quarter, up 12.2% from the level of the same quarter in 2007.