Fannie May Halve Its Capital Base

Fannie Mae on Wednesday said it would write off substantially all of it "deferred tax assets" which could cut its capital base in half. According to a research note put out by Credit Suisse, the GSE had $20.6 billion in deferred taxes as of June 30 and GAAP equity of $41.2 billion. "Thus the write down in deferred tax assets and AOCI would reduce GAAP equity by half," writes CS analyst Moshe Orenbuch. (AOCI stands for accumulated other comprehensive income.) Mr. Orenbuch said Freddie Mac is likely to take similar action since both enterprises are in government-controlled conservatorships. "We believe that the fact that they may be run with more of a public policy motivation and less of a profit motive could have contributed to the decision to write down the deferred taxes," the Credit Suisse analyst said.