Fannie Mae reports record loss

In its first report since being seized by the U.S. government in September, Washington-based Fannie Mae said its third-quarter net loss was $29 billion, or $13 a share, the largest for any company in the Standard & Poor's 500 this year.

Allison, installed when the government took over Fannie and smaller rival Freddie Mac, reduced most of Fannie's deferred tax credits, increased default estimates and said credit losses will increase. The decisions cut the company's net worth by 79% and show the new management is taking a dimmer view of Fannie's financial future than the team under former CEO Daniel Mudd.

"The earnings were gruesome," said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York. "They're trying to clean house."

Fannie's new management increased reserves for future credit losses from $3.7 billion last quarter and took a higher- than-expected charge against its $5.2 billion in "temporary" losses.

The company's net loss in the same period last year was $1.4 billion, or $1.56 a share.

Fannie, which traded at almost $50 a share a year ago, rose four cents to 78 cents at 9:31 a.m. in New York Stock Exchange composite trading. Fannie's stock market value slumped from $39 billion at the beginning of the year to about $4 billion as of Nov. 7, including the government's 79% stake.

Fannie slashed its net worth, or the difference between assets and liabilities, to $9.4 billion on Sept. 30 from $44.1 billion at Dec. 31. The company said today it may fall to negative net worth by the end of next quarter, requiring it to seek government funding. Fannie said today that it hadn't tapped any federal aid through Nov. 7.

The Federal Housing Finance Agency placed Fannie and Freddie under its control Sept. 6 and forced out management after examiners found their capital to be too low and of poor quality. Treasury Secretary Henry Paulson pledged to invest as much as $100 billion in each company as needed to keep their net worth positive.

The companies will need that money "sooner rather than later," according to Paul Miller, an analyst at Friedman, Billings, Ramsey in Arlington, Va. Miller predicted Allison, 65, would write down higher-than-expected credit costs, Miller said.