Fannie Mae's (FNMA) CEO Tim Mayopoulos on Q4 2017 Results - Earnings Call
Feb. 15, 2018 8:30 AM ET| About: Fannie Mae (FNMA)
Q4: 02-11-18 Earnings Summary
10-K Press Release News
Fannie Mae (OTCQB:FNMA) Q4 2017 Results Earnings Conference Call February 14,
2018 8:00 AM ET
Executives
Maureen Davenport - Senior Vice President and Chief Communications Officer
Tim Mayopoulos - President and CEO
David Benson - CFO
Analysts
Joe Light - Bloomberg News
Brad Finkelstein - National Mortgage News
Andrew Ackerman - Wall Street Journal
Operator
Welcome and thank you for standing by. At this time all participants are in a listen-only mode. [Operator Instructions] Today’s conference is being recorded, if you have any objections you may disconnect at this time.
Now I’d like to turn it over to your host, Maureen Davenport, Fannie Mae's Senior Vice President and Chief Communications Officer. Thank you. You may begin.
Maureen Davenport
Thank you, Operator. And thank you all for joining the media call and webcast to discuss Fannie Mae’s Fourth Quarter and Full Year 2017 Financial Results. Please note that this call may include forward-looking statements, including statements about the company's future performance and actions, business plans, and strategy. Future events may turn out to be very different from these statements. The risk factors and forward-looking statements sections in the company's 2017 Form 10-K filed today describe the factors that may lead to different results.
As a reminder, this call is being webcast and recorded by Fannie Mae and the recording may be posted on the company's website. We ask that you do not record this call for public broadcast and that you do not publish any full transcript thereof.
I’d now like to turn the call over to Fannie Mae’s President and Chief Executive Officer, Tim Mayopoulos.
Tim Mayopoulos
Thanks, Maureen. And good morning, everybody. Thanks for joining us for today’s call.
I'm pleased to update you on another solid quarter and another solid year. I'll make some brief comments and then our Chief Financial Officer David Benson and I will open it up for your questions.
Let me start with the fourth quarter of 2017. Our business performance in the quarter was excellent with pre-tax income of $5 billion. Like many companies, however, our fourth quarter results were adversely impacted by the recent tax legislation.
We reported a net loss of $6.5 billion for the quarter and a comprehensive loss of $6.7 billion. This compares to net income of $3 billion and comprehensive income of $3 billion for the third quarter of 2017.
The primary driver of changes in our results for the fourth quarter was a $9.9 billion provision for federal income taxes resulting from the re-measurement of the company’s deferred tax assets.
The Tax Act reduced the corporate tax rate from 35% to 21%, and accordingly this required us to write down the value of our deferred tax assets. As a result, we had a net worth deficit of $3.7 billion as of December 31, 2017, and we will require a draw from Treasury to eliminate this deficit.
This was an expected, one-time outcome of the tax bill and is not a reflection of our underlying business, which remains strong. Going forward, the impact of the lower tax rate will accrue to the benefit of our future net income.
Another important event that happened in the fourth quarter was the agreement with Treasury to revise the terms of Fannie Mae's senior preferred stock. Under the terms of the agreement, Fannie Mae may now retain up to $3 billion in capital reserves. Once we are able to rebuild this capital cushion with future earnings, it will enable us to weather modest volatility in our quarterly results.
I would like to point out, however, that this does not constitute a comprehensive recapitalization event. While this will help us reduce the probability of requiring a Treasury draw in quarters where losses do not exceed the capital retained up to $3 billion, we recognize that by any reasonable standard, our company and the housing finance system it supports will require substantially more to be considered properly capitalized.
