|Impact of Restatement on Financials and Business|
As stated above, Freddie Mac continues to expect that the cumulative effect of the restatement will be to materially increase retained earnings for prior periods and materially increase its capital surplus under its regulatory minimum capital requirement as of December 31, 2002. Based on the information currently available, management believes that the expected cumulative effect of the restatement is to increase retained earnings as of December 31, 2002, by a range of $1.5 billion to $4.5 billion. Management cautions, however, that neither the restatement nor re-audit processes are complete and the final determination of the cumulative effect could therefore differ from this range. The expected cumulative increase to retained earnings will likely be driven primarily by gains on certain derivatives and mortgage securities that will be marked to fair value during periods in which interest rates were declining. In addition, the corporation continues to expect that adjustments affecting its income will relate substantially to changes in the timing of income recognition, and, as a result, cumulative increases related to these adjustments will have offsetting effects in future periods. These accounting policy changes will cause greater volatility in Freddie Mac's financial statements for prior periods. Freddie Mac believes there also will be significant volatility in its results in future periods.
Freddie Mac also expects a material increase in the fair value of shareholder equity in its fair value balance sheet as of year-end 2002 versus year-end 2001. This expected increase is subject to completion of the restatement and re-audit processes. Freddie Mac's economic hedges remain effective, as demonstrated by its consistently low levels of portfolio market value sensitivity ("PMVS") and narrow duration gap. The accounting policies that will be implemented in connection with the restatement will not adversely affect Freddie Mac's ability to invest in or securitize mortgages, or prudently manage the risks in its business."
does this get a pop up today... doesn't this bring down the pe with additional retained earnings.