Freddie Mac Dividend Is Ruled Income: Accounting Board Says Thrifts Can List Distribution as Extraordinary Item
Basch, Mark, American Banker
Freddie Mac Dividend Is Ruled Income
Accounting Board Says Thrifts Can List Distribution as Extraordinary Item
The Financial Accounting Standards Board decided Wednesday that dividends issued by the Federal Home Loan Mortage Corp. to thrift institutions can be recorded as income, although they will have to be listed separately as an extraordinary item on financial statements.
The board ruled at an open meeting that "value has indeed been transferred and should be recognized' in the transfer of preferred stock from Freddie Mac to savings and loans members of the Federal Home Loan Bank system.
The proposed accounting rules will be issued in a technical bulletin by the accounting board. The changes will be retroactive to Dec. 31 and future earning reports should be restated to include the extraordinary item.
The board also decided that the Federal Home Loan district banks should not include this transaction as income. The Federal Home Loan Bank Board, which serves as the board for Freddie Mac, ordered the transfer to the district banks, which in turn transferred the stock to member institutions.
The dividend income provided an earnings boost estimated at $600 million to $900 million for 1984 for the beleaguered thrift industry.
The accounting board's ruling was praised by the U.S. League of Savings Institutions.
"We agree with the exposure draft position by the Financial Accounting Standards Board that it is appropriate to recognize income from the distribution of Freddie Mac preferred stock,' said William B. O'Connell, president of the trade group.
"We believe that the distribution has enhanced the position of savings institutions and that this improved condition should be reflected on their financial statements,' he said. …