High Rates Hurt San Francisco FHLB

A "dramatic" rise in interest rates during September triggered hedging and derivative losses and led to a dividend cut at the Federal Home Loan Bank of San Francisco in the third quarter, when its earnings fell 25%. The FHLBank posted $101 million in earnings for the third quarter, down from $135 million in the same period in 2007. Net interest income totaled $393 million, up 59% from a year ago. The board was planning to pay a 5.4% quarterly dividend, but reduced it to 3.85%, due to other losses. "These losses were primarily due to unrealized net losses associated with derivatives, hedged items and financial instruments carried at fair value, which resulted in net losses of $179 million in the third quarter of 2008 compared to a net loss of $28 million in the third quarter of 2007," the bank said. In terms of advances, member institutions have increased their borrowings from the San Francisco bank by 5% or $12 billion over the past three quarters.