Keefe Bruyette reduced its earnings estimates for Freddie Mac, along with Fannie Mae, by 10%. The firm now expects $26 billion of combined earnings pro forma, which includes the cost of $2.4 billion in preferred dividend expense that is currently not being paid. This adjustment reflects a more conservative outlook on the companies' future profitability.
The analyst noted that the companies earn a roughly 65 basis point incremental guarantee fee, but pay 10 points of that to Treasury as part of a fee initially put in place under the Temporary Payroll Tax Cut Continuation Act. This reduction in earnings estimates can influence investor sentiment regarding Freddie Mac's financial prospects.
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