Fannie Mae issues statement on derivatives accounting policy

The statement, made by Chuck Greener, senior vice-president of communication at Fannie Mae, reiterated the agency's "disciplined" approach to derivatives accounting.

"Fannie Mae made a permanent and irrevocable decision to become an SEC registrant when we filed our fully audited financial statements with our Form 10 and Form 10-K on March 31, 2003," said the statement. "The issues [on Freddie Mac] raised to date appear to be financial management and accounting policy issues that are within the purview of the SEC. Therefore Fannie Mae, as an SEC registrant, is subject to SEC oversight and enforcement with regard to such issues."

Freddie Mac has been under investigation by the SEC since January over its reporting of its derivatives earnings. The agency restated its earnings for 2000-2002 in January on the advice of its new auditor, PricewaterhouseCoopers, which took over from Arthur Andersen. This has led to accusations that the agency deliberately smoothed its previous earnings statements through the use of its derivatives accounting policy.

Fannie Mae's statement today appears to be aimed at mollifying investors concerned that it may have done something similar. It also reiterates a statement made by Franklin Raines, chief executive of the mortgage agency, in January, which said: "We don't approach our hedging with a specific accounting result in mind."

Freddie Mac fired its chief operating officer, David Glenn, earlier this week, alleging that he had not fully co-operated with the SEC's enquiry. The SEC said it had found pages missing from Glenn's private diary.

It is unclear what information the missing pages contained, but some parties feared more problems may emerge. "The fact that three other people left at the same time as Glenn indicates that this is likely to be more than a personal issue," said one analyst, who spoke on condition of anonymity.

Fannie Mae and Freddie Mac are two of the largest participants in the US interest rate swaps market, which they use to hedge volatility related to their mortgage businesses.