Shares of Freddie Mac (FRE) are up over 82% this afternoon after the firm reported a quarterly profit.
Of course, there’s probably still no way that Freddie Mac is worth anything. Its $768 million in net income is derived from one-time accounting voodoo, mark to market gains due to rising interest rates and lower funding costs because it is now part of the government of the United States. It has reduced its provision for future credit losses by $3.9 billion from last quarter to $5.2 billion, which could be bullish for news for mortgages.
Is it really likely that Freddie has any long term value? The company’s fate lies in the hands of the Congress and administration, which has lately signalled that it might be willing to spin off a “good bank.” That idea was sharply criticised and quickly disavowed by the administration, however.
Morningstar analyst Matthew Warren writes: “We remain quite certain that Freddie Mac’s common equity is worthless barring a ridiculous (from the taxpayers’ perspective) public policy decision.”
Perhaps the best analysis of Freddie Mac’s profitability we’ve heard came from a trader who pointed out that this should be embarrassing for Goldman Sachs.
“If F*&#@@ing Freddie can make a profit in this market because of low borrowing costs, Goldman should shut up about how market wise they are. They just made money the Freddie way too,” the trader said.
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