Fannie Mae 2008 Annual Report Download - page 371

the eventual sale of the assets. While the HCD guaranty business is similar to our Single-Family business,
neither the economic return nor the nature of the credit risk is similar to that of Single-Family.
Capital Markets Group
Our Capital Markets segment manages our investment activity in mortgage loans, mortgage-related securities
and other investments, our debt financing activity, and our liquidity and capital positions. We fund our
investments primarily through proceeds from our issuance of debt securities in the domestic and international
capital markets. The Capital Markets segment also has responsibility for managing our interest rate risk.
Our Capital Markets segment generates most of its revenue from the difference, or spread, between the interest
we earn on our mortgage assets and the interest we pay on the debt we issue to fund these assets. We refer to
this spread as our net interest yield. Changes in the fair value of the derivative instruments and trading
securities we hold impact the net income or loss reported by the Capital Markets group business segment. The
net income or loss reported by the Capital Markets group is also affected by the impairment of AFS securities.
Segment Allocations and Results
Our segment financial results include directly attributable revenues and expenses. Additionally, we allocate to
each of our segments: (i) capital using FHFA minimum capital requirements adjusted for over- or under-
capitalization; (ii) indirect administrative costs; and (iii) a provision (benefit) for federal income taxes. In
addition, we allocate intercompany guaranty fee income as a charge to Capital Markets from the Single-
Family and HCD segments for managing the credit risk on mortgage loans held by the Capital Markets
segment.
The following table displays our segment results for the years ended December 31, 2008, 2007 and 2006.
Single-Family HCD
Capital
Markets Total
For the Year Ended December 31, 2008
(Dollars in millions)
Net interest income (expense)
(1)
. . . . . . . . . . . . . . . . . . . . . $ 461 $ (343) $ 8,664 $ 8,782
Guaranty fee income (expense)
(2)
. . . . . . . . . . . . . . . . . . . . . 8,390 633 (1,402) 7,621
Trust management income . . . . . . . . . . . . . . . . . . . . . . . . . 256 5 — 261
Investment losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72) — (7,148) (7,220)
Fair value losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (20,129) (20,129)
Debt extinguishment losses, net . . . . . . . . . . . . . . . . . . . . . . — — (222) (222)
Losses from partnership investments . . . . . . . . . . . . . . . . . . — (1,554) — (1,554)
Fee and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 181 264 772
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,127) (404) (448) (1,979)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (27,881) (70) — (27,951)
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,667) (126) (137) (2,930)
Loss before federal income taxes and extraordinary losses . . . (22,313) (1,678) (20,558) (44,549)
Provision for federal income taxes . . . . . . . . . . . . . . . . . . . . 4,788 511 8,450 13,749
Loss before extraordinary losses . . . . . . . . . . . . . . . . . . . . . (27,101) (2,189) (29,008) (58,298)
Extraordinary losses, net of tax effect. . . . . . . . . . . . . . . . . . — — (409) (409)
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(27,101) $(2,189) $(29,417) $(58,707)
(1)
Includes cost of capital charge.
F-93
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)