McLEAN, Va. - (06/01/06) -- Freddie Mac reported that net incomeplunged 28% last year to $2.1 billion, or $2.75 a share, because ofcharges related to its ongoing accounting scandal and losses fromHurricane Katrina. The secondary mortgage market giant attributed$220 million to the settlement of shareholder lawsuits related tothe accounting scandal and of $133 million due to defaultedmortgages in the areas devastated by Hurricane Katrina. The companyalso attributed another $265 of charges to changes in accountingrules. At the same time, Freddie Mac, second fiddle in thesecondary market to Fannie Mae, said it increased its share ofgovernment sponsored enterprise mortgage securitizations to 45%last year from 41% in 2004.
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The Cleveland-based bank is projecting steady growth in net interest income even as credit losses remain manageable. But Chairman and CEO Chris Gorman also said that he thinks a recession is likely.
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The first-quarter increase involved commercial real estate loans, including some problematic multifamily loans and an office credit, but none of the criticized loans were to consumers, officials at the Dallas company say. Further CRE deterioration is anticipated.
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The Detroit-based company is exploring ways to make more consumer auto loans without running afoul of stricter capital standards that are expected from the Federal Reserve. Possible approaches include more securitizations and the use of credit risk transfers.
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The House Financial Services Committee also sent to the full House two bipartisan bills, including one that would prevent large banks from opting out of having to recognize Accumulated Other Comprehensive Income in regulatory capital.
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Charge-offs and nonperforming loans rose at the Georgia bank in the first quarter. But it blamed the problem on one large client and said the matter has been resolved.
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Amid healthy first-quarter loan growth and improving credit quality, Discover Financial Services slashed its profits by $800 million to offset remediation costs from a 16-year period when it overcharged certain merchants.
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