Regulator's 'Core Capital' Gauge For Fannie, Freddie May Be Off
Quarter after quarter, the Office of Federal Housing Enterprise Oversight sings the same old song about Fannie Mae and Freddie Mac: The government-sponsored mortgage companies it regulates are safe and sound.
That declaration should come with a caveat that ought to be familiar to investors who have slogged through earnings announcements that exclude the bad stuff. Yes, the "pro forma" accounting bug that infects so many corporate-earnings reports also has followers among Washington financial-institution regulators.
Consider Ofheo's "core capital" standard. That is the primary measure the regulator uses to test whether Fannie and Freddie Mac have adequate capital on hand to protect themselves from broad categories of business risk. Fannie, for instance, topped its $27.2 billion minimum capital requirement at Dec. 31 with $28.1 billion of core capital, by Ofheo's tally.
But the regulator's calculation of core capital excludes billions of dollars of certain accumulated losses that have built up over the years. Indeed, it would be possible for a financial institution with liabilities exceeding assets to pass Ofheo's core-capital test with flying colors.
"To the extent you want to know their current economic condition, the core-capital number overstates their true capital," says Tom Linsmeier, a Michigan State University accounting professor in East Lansing. Mr. Linsmeier is scheduled to testify Tuesday at a House subcommittee hearing on accounting standards for financial instruments, as is Freddie Mac's chief financial officer.
Fannie and Freddie Mac say they are well capitalized and that Ofheo's core-capital measure is sound, as does Ofheo . Failing to exclude certain built-up losses could "insert volatility into capital measures and lead regulators to take permanent capital actions that might not be appropriate," Freddie Mac spokesman Douglas Robinson says. Arne Christenson, a Fannie Mae senior vice president, says core capital, as now defined, "gives a more stable assessment over time of capital and encourages a more stable approach to risk management by the regulated entity."
its 1992 inception through 2000, Ofheo's core-capital measure closely tracked shareholder equity, or assets minus liabilities, as defined by generally accepted accounting principles. That changed in 2001, because new accounting rules began requiring companies to show certain accumulated gains and losses in equity that Congress's 1992 statutory definition of core capital hadn't envisioned. Thus, Fannie's core capital has risen steadily ever since the accounting-rule changes, while the company's equity position since 2000 has slipped. At Dec. 31, Fannie's equity was $16.2 billion, $11.9 billion less than core capital at the time. At June 30, equity was $17.4 billion, or less than 2% of assets, while core capital zoomed to $30.7 billion.
The widening spread between core capital and equity raises questions about the efficacy of Ofheo's core-capital measure at determining Fannie's and Freddie Mac's financial strength. And the disconnect between core capital and equity matters a great deal, because Fannie's and Freddie Mac's capital requirements are set relatively low, reflecting mortgages' low-risk reputation. For them, minimum core capital is 2.5% of assets, plus 0.45% of outstanding mortgage-backed securities and off-balance-sheet debt, much lower than for government-securities dealers or banks.
Ofheo does use other capital tests. But so far, those tests haven't much mattered, because they have compared core capital, or variants of it, with even lower minimum benchmarks. Stefanie Mullin, an Ofheo spokeswoman, notes that Ofheo recently asked Congress to grant the agency new authority "to set the minimum capital requirement, if necessary, to a level we consider appropriate taking into account a comprehensive view of capital needs."
In 2001, the Financial Accounting Standards Board issued rules that required corporate financial statements to more thoroughly reflect the values of derivative instruments. In its most basic form, a derivative is a financial contract whose value is derived from the value of an underlying security, currency or interest rate, or even other derivatives. Changes in derivatives' values must be shown immediately on companies' quarterly balance sheets and equity statements, but exceptions, in some cases, are made for companies' income statements.
The big exception is for "cash-flow hedges," which are common at Fannie and Freddie Mac. Companies use these side bets to protect cash flows from interest-rate volatility. Derivatives are designated as cash-flow hedges if their values are expected to fluctuate in a manner that offsets changes in, for example, the future interest expenses on existing variable-rate debt.
Unlike with derivatives hedging other types of risk, changes in cash-flow hedges' values don't immediately hit net income. Instead, they are put into a holding tank -- some say an accounting fiction -- on a company's equity statement, called "accumulated other comprehensive income." From there, they are released gradually over time into net income as interest payments on the hedged debt come due. At Fannie, some of the items won't hit net income until 2033. The result is less-volatile earnings. Other items, like available-for-sale securities, get similar treatment.
Ofheo in 2001 could have sought statutory changes to its core-capital definition, so it would include accumulated other comprehensive income, and thus still closely track equity. Instead, it decided to ignore the figure, and thus cash-flow hedges. Most bank regulators do the same. However, Fannie's losses on cash-flow hedges have been greater than at most banks. Fannie showed $11.8 billion of accumulated other comprehensive losses at Dec. 31, driven by $16.3 billion in cash-flow hedging losses.
There is some logic to smoothing earnings. The losses may be here today, but they will be washed out later, if all goes according to plan. If a company's cash-flow hedges are perfectly effective, value fluctuations will be offset by, say, expected variances in interest expenses on existing variable-rate debt. Of course, that remains an "if." The expected variances might not show up.
Additionally, Fannie and Freddie Mac use derivatives to hedge cash-flow risks on future debt issues. In that case, the derivatives aren't really hedging anything, because the hedged items won't materialize until the forecasted transactions occur. If a forecasted debt transaction is canceled, any built-up hedging losses or gains must hit net income immediately. That means they also would hit core capital.
Freddie Mac says it uses derivatives to hedge cash-flow risks on forecasted transactions for as many as 30 years into the future, compared with 90 days at Fannie. "One thing you really worry about is forecasting transactions 25 years down the road," says Stephen Ryan, a New York University accounting professor and derivatives specialist. "Not only is that not an exposure. The chances of it actually coming to be in the intended fashion are very low."
Granted, shareholder equity is a flawed measure of capital, in that not all balance-sheet items are carried at fair-market values.
But regulators can access more complete information. GAAP requires most companies to disclose annually the fair values of all their financial instruments. At Fannie and Freddie Mac, nearly all their holdings are financial instruments. So the disclosure amounts to a complete balance sheet showing all assets and liabilities marked at fair value. Freddie Mac recently pledged to start disclosing quarterly "fair-value balance sheet" statistics, a practice Fannie also is considering.
If Ofheo measured core capital using fair value of net assets, Fannie at Dec. 31 would have been well below its $27.2 billion minimum benchmark, with capital somewhere around $15.3 billion to $22.1 billion.
The first number is the net fair value of the assets and liabilities carried on Fannie's traditional balance sheet. The second figure includes $6.8 billion of off-the-books items that Fannie's fair-value balance sheet presented as assets, though they didn't qualify for inclusion as assets on Fannie's traditional balance sheet. Either way, Mr. Ryan says "they're undercapitalized" on a fair-value basis, which he views as the superior approach.
Fannie's Mr. Christenson says "a fair value balance sheet is one way to assess a company's performance," but "has significant imperfections as a measurement of regulatory capital." He adds that regulators repeatedly have rejected this approach. Because fair values often are estimates, they may be imprecise and unverifiable.
Freddie Mac's capital at the end of 2001 also would have been below the minimum had Ofheo used either fair-value or GAAP equity. However, Freddie Mac is restating past results, to show more equity and income in past periods at the expense of future earnings. That should boost core capital.
"Fair value of stockholders' equity is a valuable supplemental disclosure," Mr. Robinson says, but "there are no well understood, standardized rules and definitions that an investor can depend on."
OFHEO的"核心资本"把戏
关于联邦国民抵押贷款协会(Fannie Mae, FNM, 简称：房利美)和联邦住房贷款抵押公司(Freddie Mac)，联邦住房企业监督办公室(Office of Federal Housing Enterprise Oversight, 简称OFHEO)季复一季地老调重弹，称由其监管的这两家政府支持的抵押公司一切都好。
做出这一声明理应有所解释，对于那些终日苦苦研究那些精心剔除了不利因素的业绩声明的投资者而言，这种解释应该并不陌生。是的，这就是"预估"会计方法。这种方法在企业业绩报告中广泛采用，在华盛顿的金融机构监管者中也不乏追随者。
OFHEO的"核心资本"标准是这家监管机构用以衡量房利美和联邦住房贷款抵押公司是否拥有足够的流动资金以预防各种商业风险的主要量度标准。根据OFHEO统计，截至12月31日，房利美核心资本达281亿美元，超出了上述标准所设272亿美元的资本下限要求。
但OFHEO计算核心资本时没有将某些数年来累计起来总计高达数十亿美元的累计亏损包括在内。因此，即使是一家负债额高于资产额的金融机构也有可能在OFHEO的核心资本标准下成功过关。
密歇根州立大学(Michigan State University)会计教授汤姆?林斯梅尔(Tom Linsmeier)说，核心资本数据夸大了公司的真实资本状况。林斯梅尔今日将在众议院一个委员会听证会上就金融机构的会计标准作证，作证的还将有联邦住房贷款抵押公司的首席财务长。 房利美和联邦住房贷款抵押公司均称自身资本状况良好，且与OFHEO一样认为核心资本标准是恰当的。联邦住房贷款抵押公司发言人道格拉斯?罗宾逊(Douglas Robinson)称，计算时若包括特定的累计损失可能增加资本标准的不稳定性，并导致监管当局采取一些可能不太恰当的永久性措施。反之，现行的核心资本标准能对公司资本状况作出更稳定的评估。
从1992年实行之初至2000年间，OFHEO的核心资本标准一直都紧密追踪美国一般公认会计准则(GAAP)所定义的股东权益。 变化发生在2001年，当时新的会计规定开始要求公司提供国会1992年核心资本的法定定义中没有包括的某些累计权益所得和损失项目。因此，自新会计准则实施以来，房利美的核心资本额稳步增长，而权益资产则从2000年开始一直下滑。截至去年12月31日，房利美股权总额为162亿美元，较当时的核心资本少119亿美元。截至今年6月30日，该公司股权为174亿美元，不足资产的2%，而核心资本则膨胀至307亿美元。
核心资本和股权的差额不断扩大令外界不禁怀疑，OFHEO的核心资本标准究竟能否有效地反映房利美和联邦住房贷款抵押公司的财务实力。而核心资本与股权的分离也关系重大，因为为了反映抵押行业的低风险特点，房利美和联邦住房贷款抵押公司的核心资本要求都定得相对较低，最低标准是相当于公司资产的2.5%，再加上已发行抵押证券和资产负债表外债务的0.45%，这远低于对券商和银行的同类标准。
财务会计标准委员会(FASB)2001年颁布规定，要求公司财务声明更全面地反映其衍生金融工具的价值。衍生工具的价值变化必须立刻在公司的季度资产负债表和股权声明中有所反映，但某些例外情况也可列入公司损益表。
现金流对冲就是一大例外，该项目在房利美和联邦住房贷款抵押公司很常见。公司利用现金流对冲以保护现金流免受利率变动的影响。若预计衍生工具的价值变动将抵消现有浮动利率债务的未来利息费用等的变化，则此衍生工具即为现金流对冲。
与对冲其他风险的衍生工具不同，现金流对冲的价值变化不会对公司净利润立即构成冲击，而是以"累计其他综合收入"的名目列入公司权益报表保留项目，然后随著对冲债务的利息支付到期而逐渐融入净利润中，其结果就是收益波动大大减小。房利美的某些项目要等到2033年才会对其净利润产生影响。诸如可出售证券等其他项目也得到类似待遇。
OFHEO本可在2001年修改对核心资本的法定定义，让其包括累计其他综合收入，从而使得核心资本仍能密切追踪股东权益。但该机构没有这样做，而是决定忽略累计其他综合收入数据，即忽略现金流对冲项目。多数银行监管者也采取同样的措施，但房利美的现金流对冲损失一直高于大部分的银行。截至去年12月31日，163亿美元的现金流对冲损失，使得房利美累计其他综合损失达118亿美元。
此外，房利美和联邦住房贷款抵押公司还利用衍生工具对冲未来债务问题的现金流风险。此种作法实际并未对冲任何风险，因为只有等到预期的交易执行时才能产生实质性的被对冲的项目。若交易取消，累计的任何对冲所得或损失都必须立刻反映在净利润中。 联邦住房贷款抵押公司称，该公司运用衍生工具来对冲未来30年内预期交易的现金流风险，房利美对冲的只是未来90天的交易风险。纽约大学(New York University)会计教授兼衍生工具专家斯蒂芬?瑞安(Stephen Ryan)说，真正让人担心的是预计25年后将进行的交易，这根本不能称之为风险，因为它实际出现的可能性极低。
诚然，股东权益也是一种并不完美的资本衡量标准，在此标准下并非所有资产负债表项目都以公平市值计算。
但监管当局可以获得更多信息。GAAP要求大多数公司每年披露一次其全部金融工具的合理价值。联邦住房贷款抵押公司最近承诺将按季度披露"合理价值资产负债表"数据，房利美也在考虑这样做。
若OFHEO按□资产的合理价值计算核心资本，那么房利美截至12月31日的核心资本额将降至272亿美元的下限之下，约为153亿-221亿美元。
上述区间的低端是该公司传统资产负债表所列资产和负债的净合理价值，高端包括68亿美元的资产负债表外项目。这些项目在房利美的合理价值资产负债表中属于资产，但在该公司传统资产负债表中却不算资产。
房利美高级副总裁阿恩?克里斯坦森(Arne Christenson)称，合理价值资产负债表是评估一家公司表现的方法之一，但作为法定资本的衡量方法却有重大缺陷。他还说，监管当局一再拒绝使用这种方法，因为合理价值往往都是预期数字，可能会不精确且无法核实。 若按合理价值标准或GAAP的股权标准，联邦住房贷款抵押公司截至2001年底的核心资本也将低于OFHEO的下限。但该公司将重报以往业绩，将以往的股权及收入上调，并相应降低未来收益。此举应能推动其核心资本增加。
该公司发言人罗宾逊说，股东权益的合理价值是一项有价值的补充披露项目，但目前还没有普遍接受的规范化规定可以遵循。
