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CFC’s Letter to the Editor in response to Barron’s July 16, 2007 article “Trouble in the Heartland?” was published in the July 23, 2007 edition of Barron’s.
Here is a copy of our letter in its entirety.
Besides the significant points that CFC highlighted in its Letter to the Editor, Barron’s also made a number of factual errors in their story. Among these are the following:
“Although created by the Agriculture Department in 1969, the cooperative does not carry any ‘implied’ government guarantee….”
CFC was NOT created by the U.S. Department of Agriculture. CFC was created by its member cooperative utilities (under the leadership of the National Rural Electric Cooperative Association) to supplement the loans made by the USDA.
“Any trimming of the debt rating by the big agencies could hurt the company’s preferred stock.”
CFC is not a stock-held company and does not issue—nor has it ever issued—preferred stock. Most likely the author is referring to CFC’s subordinated deferred debt.
“[CFC’s] net interest income … dropped to $20.9 million in the first nine months of fiscal 2007 from $300.7 million in all of fiscal year 2002.”
The comparison of $20.9 million interest income vs. $300.7 million in FY'02 mixes apples with oranges. First, the $20.9 million is a 3-month income figure being compared to a 12-month number ($300.7 million). Second, the $300.7 million is taken from a statement that was done before the adoption of SFAS 133 and therefore includes the derivative cash settlements. Third, CFC’s adjusted net interest income through the first nine months of FY07 was $113.9 million.
“CFC’s loan loss provision … has fallen to zero.”
There is good reason that CFC has not increased its loan loss allowance during fiscal year 2007. CFC’s current allowance—as analyzed by our outside auditors and by management—is sufficient to address the credit risk within CFC’s loan portfolio. Thus, there is no need to add to the $611 million allowance for loan losses as reported 2/28/07.
In addition, the article does not explain that, in fact, CFC’s loan loss reserve as a percentage of gross loans outstanding—as well as the reserve’s total dollar amount—have increased over the past several years.
These are just a few of the glaring inaccuracies and omissions that occur throughout the article, which reads more like an advertisement for Egan-Jones than a true analysis of one of rural America’s valued institutions. It is unfortunate that Barron’s chose not to print any factual corrections to its article, but we are pleased that Barron’s published our Letter to the Editor so that our position could be presented for the record.
CFC encourages all investors and interested members of the public to review CFC's consolidated financial materials for a more complete understanding of the company's financial results and related company disclosures, which are available at http://www.nrucfc.coop/investors/financialReports.htm
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