If you are in the financial watch community and not feeling well, you might not want to read the financial statement from Freddie Mac (NYSE: FRE).  And it will rub off on Fannie Mae (NYSE: FNM) as well.

Freddie Mac posted a fourth quarter net loss of $23.9 billion.  That is a loss of -$7.37 EPS.  If you can believe it, this is actually better that its net loss of $25.3 billion, or -$19.44 EPS, that it reported in the third quarter.

It gets worse too.  For the full year, Freddie’s 2008 net loss was $50.1 billion, or -$34.60 EPS.  That is compared to a net loss of $3.1 billion, or -$5.37 EPS for all of 2007.

The company said that its losses were driven primarily by net mark-to-market declines on the derivatives portfolio, guarantee asset and trading securities; increased credit-related expenses; and security impairments.  It also recognized an additional valuation allowance against its net deferred tax assets.

When you read things like this, it is no wonder that the government won’t take it over.  Well, officially take it over that is.  This is a G.S.E., or a government sponsored entity.  Uncle Sam does not want this garbage on the federal balance sheet.

The company will also be looking for a new CEO.  We wonder what the point is.  Dead man walking.

The company has said that it will need a $30.8 billion injection from the Treasury under the existing approved funding that the Treasury Department has pledged.  Fannie Mae lost $25.2 billion in its most recent quarter, so maybe Freddie can point a finger and claim it is not quite as bad as Fannie.

If you hold common stock of either of these GSE’s, you better understand that you are just holding a way out of the money call option that the world will improve suddenly.  Other than that, there is no real value left.

JON C. OGG

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