Freddie Mac cuts 2003 profit due to legal expenses

Fri Sep 24, 2004

NEW YORK, Sept 24 (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research) , the second-largest U.S. home financing company, on Friday revised its 2003 net income downward by $75 million to provide for a reserve for legal expenses, according to its annual report.

The revision follows last year's massive restatement of more than $6 billion in income for 2002 and earlier periods.

Freddie Mac admitted it manipulated its accounting to smooth out profit swings to show the kind of steady growth that Wall Street favors.

The company said 2003 net income totaled $4.816 billion instead of the previously reported $4.891 billion. The difference was due to a $75 million reserve fund Freddie Mac set up for legal expenses related to restating its earnings.

The McLean, Virginia-based company originally reported its 2003 results on June 30. At that time, its 2003 profit was down 52 percent from 2002's $10.1 billion.

Freddie Mac will hold a conference on its financial reporting on Nov. 1 and an annual shareholder meeting Nov. 4.

The government is examining Freddie Mac's sister company Fannie Mae (FNM.N: Quote, Profile, Research) for its accounting practices.

Freddie Mac's accounting scandal caused a management shake-up that included the ouster of two chief executives.

On Thursday, Fannie Mae, the No. 1 U.S. home funding company, said in a filing with the Securities and Exchange Commission it changed the terms under which its top three executives could be fired for "cause," which would prevent them from leaving with big payouts.

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