Valuation Allowance Drives Fannie Mae $29B Loss

Fannie Mae lost $29 billion ($13.00 per share) in the third quarter of 2008, driven primarily by a $21.4 billion non-cash charge to establish a valuation allowance against deferred tax assets, as well as $9.2 billion in credit-related expenses arising from the ongoing deterioration in mortgage credit conditions and declining home prices. The company entered Federal Housing Finance Agency conservatorship on Sept. 6, 2008. In the same period one year ago, Fannie Mae lost $1.4 billion ($1.56 per share). Commentary from Moody's Investors Service notes, "The deferred tax valuation allowance was largely a result of uncertainty regarding the company's future profitability. Future profitability is likely to be reduced, at least in the short-term, as the company has been required to primarily focus on its public policy mission of supporting the US housing market rather than maximizing shareholder value. It is uncertain when or if the company's focus will return to profitability. In addition, there is the potential that the company will be unable to regain the franchise and same level of profitability upon emerging from conservatorship." Moody's affirmed its ratings on Fannie Mae. Fannie Mae's website is http://www.fanniemae.com.