Fannie Mae 2008 Annual Report Download - page 165

amount of long-term debt as interest rates fell during the period. Net cash used in investing activities was
$72.5 billion, attributable to our purchases of available-for-sale securities, loans held for investment and
advances to lenders.
Year Ended December 31, 2007. Our cash and cash equivalents of $3.9 billion as of December 31, 2007
increased by $702 million from December 31, 2006. We generated cash flows from operating activities of
$42.9 billion, largely attributable to net cash provided from trading securities, and net cash flows from
financing activities of $23.4 billion, as the proceeds received from the issuance of preferred stock and from
the issuance of debt exceeded amounts paid to extinguish debt. These cash flows were largely offset by net
cash flows used in investing activities of $65.6 billion, attributable to significant increases in advances to
lenders and federal funds sold and securities purchased under agreements to resell.
Capital Management
Regulatory Capital
On October 9, 2008, FHFA announced that our existing statutory and FHFA-directed regulatory capital
requirements will not be binding during the conservatorship, and that FHFA will not issue quarterly capital
classifications during the conservatorship. FHFA has directed us, during the time we are under
conservatorship, to focus on managing to a positive net worth, provided that it is not inconsistent with our
mission objectives.
We will continue to submit capital reports to FHFA during the conservatorship and FHFA will continue to
closely monitor our capital levels. Our minimum capital requirement, core capital and GAAP net worth will
continue to be reported in our periodic reports on Form 10-Q and Form 10-K, as well as on FHFA’s website.
FHFA has stated that it does not intend to report our critical capital, risk-based capital or subordinated debt
levels during the conservatorship.
Pursuant to its new authority under the Regulatory Reform Act, FHFA has announced that it will be revising
our minimum capital and risk-based capital requirements.
Table 42 displays our core capital and our statutory minimum capital requirement as of December 31, 2008
and 2007. The amounts for 2008 are our estimates as submitted to FHFA.
Table 42: Regulatory Capital Measures
2008
(1)
2007
(1)
As of December 31,
(Dollars in millions)
Core capital
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,641) $45,373
Statutory minimum capital requirement
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,552 31,927
Surplus (deficit) of core capital over statutory minimum capital requirement . . . . . . . . . . . . . . . . . $(42,193) $13,446
Surplus (deficit) of core capital percentage over statutory minimum capital requirement . . . . . . . . . (125.8)% 42.1%
(1)
Amounts as of December 31, 2008 represent estimates that have not been submitted to FHFA. Amounts as of
December 31, 2007 represent FHFA’s announced capital classification measures.
(2)
The sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated
value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained
earnings (accumulated deficit). Core capital excludes accumulated other comprehensive income (loss).
(3)
Generally, the sum of (a) 2.50% of on-balance sheet assets; (b) 0.45% of the unpaid principal balance of outstanding
Fannie Mae MBS held by third parties; and (c) up to 0.45% of other off-balance sheet obligations, which may be
adjusted by the Director of FHFA under certain circumstances (See 12 CFR 1750.4 for existing adjustments made by
the Director).
The reduction in our core capital during 2008 was attributable to the net loss we incurred during the year,
including the non-cash charge recorded during 2008 to establish a valuation allowance for a portion of our
deferred tax assets.
Under the Regulatory Reform Act, a capital classification of “undercapitalized” requires us to submit a capital
restoration plan and imposes certain restrictions on our asset growth and ability to make capital distributions.
FHFA may also take various discretionary actions with respect to us if we are classified as undercapitalized,
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