Freddie Mac (FRE:NYSE)

Freddie Mac reported earnings results for the third quarter ended September 30, 2009. The company reported a net loss of $5.0 billion for the quarter ended September 30, 2009, compared to net loss of $25.29 million for the same quarter previous year. After the dividend payment of $1.3 billion on its senior preferred stock to the U.S. Department of the Treasury (Treasury), Freddie Mac reported a net loss attributable to common stockholders of $6.3 billion, or $1.94 per diluted common share, in the third quarter of 2009, compared to a net loss attributable to common stockholders of $374 million, or $0.11 per diluted common share, in the second quarter of 2009. Total revenues for the period were $3.38 million compared to negative revenue of $9.55 million for the same period previous year. Loss before income tax expense for the period was $5.16 million compared to negative revenue of $17.32 million for the same period previous year. Net interest income for the third quarter of 2009 was $4.5 billion, compared to $4.3 billion for the second quarter of 2009. The increase was primarily driven by lower short-term and long-term funding costs. Net interest income for the third quarter excludes the cost on funds the company received from the Treasury under the Purchase Agreement, which is reported as dividends paid on senior preferred stock. During the third quarter of 2009, the company recognized $1.2 billion of net impairment of AFS securities in earnings, compared to $2.2 billion of net impairment of AFS securities recognized in earnings in the second quarter of 2009.

Freddie Mac announced that it plans to launch a $1 billion reopening of its 1.125% two-year USD Reference Notes® security that matures on December 15, 2011. The issue will price is on November 4, 2009, and will settle is on November 5, 2009. The $1 billion reopening of the 1.125% two-year Reference Notes security will be conducted via an Internet-based auction. The issue, CUSIP 3137EACF4, is listed on the Euro MTF market of the Luxembourg Stock Exchange. After the reopening, the outstanding size of the 1.125% two-year Reference Notes security will be $4.5 billion.

Regulators are blocking former employees from revealing information to investors who are suing Freddie Mac for fraud. The U.S. Treasury has propped up Freddie Mac with more than $50 billion in taxpayer money since the company nearly collapsed more than a year ago, and officials warn that the company will probably need additional billions in the months ahead. U.S. government prosecutors in Virginia and the U.S. Securities and Exchange Commission are already investigating whether the company misled investors about the risks it was taking with securities backed by subprime mortgages and no-document loans. But in a battle that was to set to start in a U.S. courtroom in New York, the company and its primary government overseer, the Federal Housing Finance Agency, are trying to enforce secrecy agreements that scores of former employees signed as a condition for receiving severance payments when they left the company. In their class-action lawsuit against Freddie Mac, three big union-based pension funds charge that Freddie Mac executives defrauded investors by concealing the company's exposure to high-risk mortgages, its mounting losses and its inadequate capital position. At the hearing on October 23, 2009, lawyers for shareholders were expected to argue that Freddie Mac's secrecy agreements amount to buying silence from willing witnesses who may have crucial information about what the company's top executives knew at the time they were assuring investors that all was well. The lawyers planned to ask a judge to invalidate the restrictions, a move that Freddie Mac and regulators were to say the court has no right to do. Under the secrecy provisions, former employees would be permitted to answer questions from government prosecutors and investigators in any criminal case or in a regulatory proceeding. But, barring a court order, the former employees are prohibited from cooperating with anyone involved in a civil lawsuit against Freddie Mac. The severance deals were so strict, according to former employees, that they prohibited those who accepted them from saying almost anything about their old jobs or even about the secrecy pledges themselves. Lawyers for pension funds that have filed a class-action lawsuit against the company say the secrecy provisions have already muzzled at least two dozen former employees with potentially important information. Freddie Mac and the Federal Housing Finance Agency said they could not comment on the case because it was in litigation.