Street OK With Fannie Snafu -- for Now

A few hours after Fannie Mae announced a $1 billion-plus mistake in its third-quarter earnings statement, equity analysts appeared to be in a forgiving mood -- for the most part.A research report by Smith Barney analyst Matt Vetto opined that "it is unlikely there are more errors to be discovered," adding, "We think the damage here is primarily to reputation, but not likely more that that." Sandler O'Neill analyst Mike McMahon told investors the Fannie Mae error was an "embarrassment, especially since the company just put on a tutorial on the company's accounting, which covered in part the company's controls." On Wednesday afternoon Fannie Mae announced that due to a "computational error" it had to make three $1 billion-plus upward adjustments to third-quarter earnings: $1.28 billion in unrealized gains on securities; $1.14 billion in "accumulated other comprehensive income"; and $1.14 billion in shareholder equity. Analysts issued forgiving statements a few hours later. Then, on Thursday morning Fannie blamed its news release distributor for improperly issuing a statement (on Wednesday) about its earnings without first checking with the company. In about two hours on Wednesday, Fannie's stock had fallen almost 6% before the company could issue clarifying comments. Its stock then recovered and was trading up slightly on Thursday at MortgageWire's midday deadline.