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KLMNO WASHINGTON BUSINESS Freddie’s loss narrows, but firm needs more aid
U.S. government’s intervention brings its own set of woes
by Zachary A. Goldfarb Mortgage finance giant Freddie
Mac said Monday that its loss in the second quarter narrowed but that taxpayers would still be on hook for the foreseeable future. Freddie’s loss in the three- month period ended June 30 was $4.7 billion, compared with $6.8 billion in the first quarter. As a result of the losses, Freddie will need $1.8 billion more in gov- ernment aid on top of more than $60 billion already provided by taxpayers. Freddie’s quarterly loss result- ed from the company’s decision to set aside more money to cover losses on home loans that are not being paid off. The Reston com- pany is also losing money as it re- structures mortgages for borrow- ers who can’t afford the monthly payments, part of the Obama ad- ministration’s efforts to reduce foreclosures. “Freddie Mac continues to sup-
port the still-fragile housing mar- ket by providing America’s fami- lies with access to affordable home financing and foreclosure alternatives,” chief executive Charles E. Haldeman Jr. said in a statement. “We recognize that
tee mortgages to keep interest rates low and on reworking unaf- fordable home loans so borrowers can avoid foreclosure. The federal government has pledged to keep the companies solvent. The firms are also paying steep dividends to the government in return for the aid. The dividend rate, 10 percent, is far more than the companies would pay to raise money in the capital markets. After the latest round of assis- tance, Freddie will be required to pay $6.4 billion in annual divi- dends to the government. “This dividend amount exceeds the company’s annual historical earn- ings in most periods,” Freddie said in a statement. “Freddie Mac ex- pects to request additional draws under the Purchase Agreement in future periods.” Fannie is facing a similar chal-
lenge. The District-based firm re- ported a $1.2 billion loss last week. The massive dividends are forc-
PAUL J. RICHARDS/AGENCE FRANCE-PRESSE VIA GETTY IMAGES
Although Freddie Mac narrowed its loss, it will need $1.8 billion in additional government aid. The mortgage giant faces relatively high dividend rates on the aid, which may complicate its finances.
high unemployment and other factors still pose very real chal- lenges for the housing market, and with that in mind, we contin- ue to focus on the quality of the new business we are adding to our book to be responsible stew-
ards of taxpayer funds as we sup- port the nation’s housing market." The federal government stepped into Freddie and its larg- er rival, Fannie Mae, two years ago. Now, it is government deci- sions that are driving a good bit of
the companies’ losses. Since then, they have been run
by government overseers who have told the companies to help carry out the Obama administra- tion’s housing policy. They have focused on continuing to guaran-
ing Fannie and Freddie to borrow money from the Treasury to repay taxpayers, creating a cycle of ever- increasing demands for govern- ment infusions of money and divi- dend payments. The Obama administration and Congress are beginning to devise a new housing finance system to replace Fannie and Freddie. No decisions about the future of U.S. housing policy have been an- nounced.
goldfarbz@washpost.com Merck being probed for possibly violating anti-bribery laws By Linda A. Johnson
trenton, n.j. — Two federal agencies are probing drugmaker Merck for possibly violating anti- bribery laws in multiple foreign countries. Merck, the world’s second-big-
gest drugmaker by revenue, has received inquiry letters from the Department of Justice and the Securities and Exchange Com- mission, the company said in a regulatory filing. The letters “seek information about activ- ities in a number of countries and reference the Foreign Cor- rupt Practices Act,” according to Merck. The FCPA act bars U.S. compa- nies from bribing government of-
ficials in other countries to win business, among other things. “Merck has in place an FCPA compliance program, and our policy is to conduct our business in accordance with all applicable laws, including FCPA,” Merck spokesman Ron Rogers said Monday. Merck, based in Whitehouse
Station, N.J., disclosed the in- vestigation in an SEC filing on Friday. Merck said in the filing that it is cooperating with the agencies and thinks that the probe is part of a broader review of pharmaceutical industry prac- tices overseas. Merck and most other large drugmakers for the past couple years have been hotly pursuing sales in emerging markets in-
cluding China, Russia, India and Brazil. Government health pro- grams in such countries often control the prices allowed for prescription drugs and decide which brands they will buy for millions of patients. The industry sees high-volume sales in emerging markets as its best hope for growth. Companies have been adding thousands of salespeople and building facto- ries staffed by lower-paid work- ers in those countries. Revenue growth is waning in
the United States and Europe be- cause of the global recession, big- ger U.S. government discounts under the health-care overhaul and dozens of blockbuster medi- cines getting cheap generic com- petition in Western countries —
with few big new products com- ing on the market to replace those billions of dollars in an- nual sales. Meanwhile, Merck has a his-
tory of trouble regarding promo- tion of its products. It’s paid out $4.85 billion to
settle about 50,000 lawsuits brought by patients or survivors of people who took its Vioxx painkiller and claimed Merck played down the pill’s dangers. Vioxx doubled the risk of heart attacks and strokes, including fa- tal ones.
Currently, Merck is operating under a federal corporate integ- rity agreement covering its pro- motional practices and price re- porting. The agreement runs through February 2013 and is
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similar to two earlier, five-year corporate integrity agreements with the Department of Health and Human Services office of in- spector general. Merck entered into one of the agreements in February 2008 and Schering-Plough entered into the other in 2004 and later extended it for a couple years. Merck bought Schering-Plough for $41 billion last November. The agreements in general re- quire Merck and its Schering- Plough unit to maintain an eth- ics training program, as well as “policies and procedures gov- erning promotional practices” and reporting of prices for its drugs to the Medicaid health program.
—Associated Press LOCAL DIGEST CONTRACTING
GeoEye says deal is worth $3.8 billion
GeoEye, the Dulles-based satel- lite imaging company, on Monday confirmed details of a $3.8 billion contract it won from the National Geospatial-Intelligence Agency, which was announced Friday. About $2.8 billion is for com- mercial satellite imagery purchas- es over the next 10 years, in an ex- tension of an existing contract for $150 million per year for 10 years. Another $184 million per year for seven years is for the use of the satellite GeoEye-2 starting in 2013. The deal puts $337 million toward developing and launching the GeoEye-2, and $700 million for support products and services. Funding is subject to annual congressional budget approval. GeoEye shares were up 23 per- cent, to close at $39.50 Monday. —Associated Press
ENERGY
Constellation bids for 5 Boston plants Constellation Energy said Mon-
day that it bid to buy five power plants from Boston Generating for about $1.1 billion. The power plants — four natu-
ral-gas and one fuel-oil plant — generate about 2,950 megawatts. The deal is expected to be part of Boston Generating’s bankruptcy proceedings. The company took on large sums of debt that became unwieldy during the economic downturn.
If approved, Constellation’s bid will be considered the price to beat in an asset auction to be held later this year. Constellation, the Baltimore
utility, expects to finance the deal with a mix of cash and debt. —Associated Press
TUESDAY, AUGUST 10, 2010
On Mondays, The Washington Post offers Capital Business, a weekly publication covering the region’s business community. A one-year subscription costs $49 and is available only to Post subscribers. Visit
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$3.3505
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Orange Juice Silver
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30-Year fixed mortgage 15-Year fixed mortgage 1-Year ARM
5-year note Yield:
2.83 1.52
4:30 p.m. New York time.
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Gainers and Losers from the S&P 1500 Index Daily
Close %Chg $22.08 21.1
$20.56 11.3 $18.83 11.0 $8.43 9.2 $5.18 8.6 $17.68 7.8 $10.04 7.3 $10.40
6.9
Meritage Homes Corp $18.35 6.8 Standard Register KB Home
$3.80 6.7 $12.00 6.5 $12.65 6.4 $18.57 6.3 $10.41 5.9 $11.38 5.9 $3.26 5.8 $13.38 5.8 $15.88 5.7 $4.19 5.5 $13.01 5.4
Losers
GreatAtla&PacTea PharMerica Corp Skechers USA
Hewlett-Packard Seahawk Drilling DG FastChannel Inc Veeco Instruments Omnicare Inc Tyson Foods Dynegy THQ Inc
Close %Chg $3.40 –11.0
Daily
$8.60 –10.4 $30.20 –8.8 $42.60 –8.0 $8.76 –7.8 $34.23 –7.6 $37.17 –6.9 $20.43 –6.0 $16.30 –4.9 $3.43 –4.5 $4.38 –4.4
American Public Edu $27.71 –4.3 Neenah Paper Inc MarineMax ValueClick
Alliance One Intl NovatelWireless Headwaters Inc Hologic Midas
2-year note Yield:
6-month bill Yield:
0.54 0.18
Note: Bank prime is from 10 major banks. Federal Funds rate is the market rate, which can vary from the federal target rate. LIBOR is the London Interbank Offered Rate. Consumer rates are from Bankrate. All figures as of
$17.34 –3.7 $7.24 –3.6 $10.60 –3.5 $3.29 –3.5 $6.08 –3.5 $3.74 –3.4 $15.57 –3.2 $8.28 –3.2
Treasury Performance Over Past Three Months
Soybeans Sugar Wheat
$800
$1.4425 $18.24
$10.4850 $0.1773 $7.1250
day $1000
Close %Chg +0.2 –1.2 –1.0 –2.8 –1.8
Daily
month $1200
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