Freddie Mac Revises 2003 Profit to Cover Legal Reserve

Freddie Mac (FRE), the second-largest U.S. home financing company which has endured a barrage of intense public scrutiny in over the past year, Friday revised its 2003 net income down by $75 million to cover a reserve for legal expenses, according to its annual report.

The revision follows last year's massive restatement of $5 billion in income for 2002 and earlier periods. Freddie Mac admitted it manipulated accounting to smooth out profit swings to show the kind of steady growth that Wall Street favors.

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

Freddie Mac 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 it had set up for legal expenses related to restating its earnings.

In December, Freddie Mac agreed to pay a $125 million penalty to settle with regulators on its faulty accounting.

Two states and a labor union pension fund are suing the company to recover losses on their Freddie Mac shares due to the accounting scandal.

The McLean, Va.-based company had 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 call on its financial reporting on Nov. 1 and an annual shareholder meeting Nov. 4.

The government is also examining sister home finance company Fannie Mae for its accounting practices.

On the New York Stock Exchange (search), Freddie Mac shares were down 54 cents or 0.8 percent at $63.84. Risk premiums on its bonds grew by 0.005 percentage point to 0.010 percentage point from Thursday.

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