A Wild Guess: Why the DTAs not used for 4th quarter
The March 15 FNMA announcement kicked up a wild drive that led to a 4-day rally of the two GSE stocks soaring from $0.29 to $1.08 (FNMA). In addition to confirming its profitability, the FNMA announcement zeroed in on one point, namely, its need of more time on the accounting of the defered tax assets (DTA) made it necessary to postpone its 4th quarter earning report. As the DTA ran over 60B, the company stated the "accounting change would result 'in a significant dividend payment' to the U.S. Treasury." (WSJ article, March 18).
The April 2 4th quarter and full year report, however, indicated a change in tone on the DTA benefit. Instead of reclaiming its tax benefit for the 4th quarter, it decided not Why such an abrupt turn within just two weeks? A MarketWatch article on March 20 by Sital S. Patel may give us a clue. It writes: "The Federal Housing Finance Agency said the two mortgage lenders will be able to return money to the U.S Treasury after new terms were negotiated." The report did not give its source, but apparently "new terms" to "return" money were being or will be "negotiated".
The gap between the March 15 announcemnt and the April 2 report on DTA treatment is, therefore, not a simple accounting consideration. The change was very likely occasioned by the uncertainty on the prospect of debt redemption. The "negotiation" of "new terms" discussed by MarketWatch has not started or progressed as FNMA leaders had expected when they decided to postpone the 4th quarter report on March 15; the company may have found within the 2-week interval that more time is needed for that prospect of debt redemption to mature. Hence, a new postponement. The company does not say how long to wait for the DTA reclaiming, but it gives the impression that once the signal comes that the GSEs are allowed to redeem their debt, they, as hinted in the April 2 earnings report, can reclaim the tax benefit in the very next quarterly report.