Freddie Mac 2014 Annual Report Download - page 241

236 Freddie Mac
without just compensation; and (b) the U.S government breached an implied-in-fact contract with Freddie Mac. The plaintiffs
ask that they be awarded just compensation for the U.S. government’s alleged taking of their property, attorneys’ fees, costs and
expenses, and that Freddie Mac be awarded damages or other appropriate relief for the alleged breach of contract.
At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in the U.S. District
Court for the District of Columbia and the U.S. Court of Federal Claims (including the outcome of any appeal) or any potential
effect on our business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate
the possible loss or range of possible loss in the event of an adverse judgment in the foregoing matters due to a number of
factors, including the inherent uncertainty of pre-trial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac
Senior Preferred Stock Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of
damages they believe are due, and the Court has not certified a class.
Since October 2013, we have received a number of letters from purported holders of common stock and/or junior
preferred stock. The purported shareholders made various demands in these letters, including that Freddie Mac take action to
terminate the August 2012 amendment to the Purchase Agreement and commence legal action against the U.S. government to
recover all losses sustained by Freddie Mac as a result of such amendment. FHFA (as Conservator) has generally informed the
purported shareholders that the Conservator does not intend to authorize Freddie Mac or its directors or officers to take the
various actions that such shareholders demand. All of the purported shareholders subsequently filed shareholder derivative
lawsuits against Freddie Mac. These cases are among those described above. It is possible we could receive additional demand
letters from purported shareholders, which could ultimately lead to additional lawsuits against us.
NOTE 18: REGULATORY CAPITAL
On October 9, 2008, FHFA announced that it was suspending capital classification of us during conservatorship in light
of the Purchase Agreement. FHFA continues to monitor our capital levels, but the existing statutory and FHFA-directed
regulatory capital requirements are not binding during conservatorship. We continue to provide quarterly submissions to FHFA
on minimum capital.
Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects a
2.50% capital requirement for on-balance sheet assets and a 0.45% capital requirement for off-balance sheet obligations. Based
upon our adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs, we
determined that, under the new consolidation guidance, we are the primary beneficiary of trusts that issue our single-family
PCs and certain Other Guarantee Transactions and, therefore, effective January 1, 2010, we consolidated on our balance sheet
the assets and liabilities of these trusts. Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not
affected by adoption of these amendments. Specifically, upon adoption of these amendments, FHFA directed us, for purposes of
minimum capital, to continue reporting single-family PCs and certain Other Guarantee Transactions held by third parties using
a 0.45% capital requirement. FHFA reserves the authority under the GSE Act to raise the minimum capital requirement for any
of our assets or activities.
Regulatory Capital Standards
The GSE Act established minimum, critical, and risk-based capital standards for us. However, per guidance received
from FHFA, we no longer are required to submit risk-based capital reports to FHFA.
Prior to our entry into conservatorship, those standards determined the amounts of core capital that we were to maintain
to meet regulatory capital requirements. Core capital consisted of the par value of outstanding common stock (common stock
issued less common stock held in treasury), the par value of outstanding non-cumulative, perpetual preferred stock, additional
paid-in capital and retained earnings (accumulated deficit), as determined in accordance with GAAP.
Minimum Capital
The minimum capital standard required us to hold an amount of core capital that was generally equal to the sum of 2.50%
of aggregate on-balance sheet assets and approximately 0.45% of the sum of our PCs held by third parties and other aggregate
off-balance sheet obligations.
Critical Capital
The critical capital standard required us to hold an amount of core capital that was generally equal to the sum of 1.25% of
aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs held by third parties and other aggregate off-
balance sheet obligations.
Performance Against Regulatory Capital Standards
The table below summarizes our minimum capital requirements and deficits and net worth.
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