Freddie Mac Says Earnings Fell Last Year But Remained Strong.

Freddie Mac reported decent earnings for 2003 despite its accounting woes but it also warned that its efforts to return to regular and timely financial reporting will take longer than expected.

The giant mortgage company posted $4.9 billion in earnings for 2003, down 52% from 2002 when it reported record profits of $10.1 billion.

The publicly traded company blamed the huge drop primarily on the accounting standards for derivatives. The 2002 results were bolstered by a $5.3-billion gain in the value of its derivatives. In 2003, the derivative portfolio had a mere $39-million gain.

Derivatives also caused wide fluctuations in quarterly results - from a $2.5-billion profit in the second quarter of 2003 to a $288-million loss in the third quarter.

Last year's results were also crimped by $1.1 billion in investment losses, compared to a $1.8-billion gain in 2002. For comparison sake, Fannie Mae posted 2003 earnings of $7.9 billion.

"We produced another strong year of earnings," Freddie Mac chairman and chief executive Richard Syron told investors. "We enhanced our strong capital position. We managed our interest rate and credit risks to achieve truly impressive results."

However, he warned that it is going to take Freddie Mac longer to get its financial house in order.