New Fannie Mae Executive Vows to 'Put Things Right'
Investors are hoping that management changes at Fannie Mae will bolster the company's reputation with regulators and Congress.
Fannie Mae's board last Tuesday replaced the two top executives and fired its auditor, KPMG, as pressure mounted to make big changes in light of the company's accounting standards violations and the Securities and Exchange Commission's order for a restatement of possibly $9 billion.
Chief Executive Officer Franklin D. Raines and Chief Financial Officer Timothy Howard were temporarily replaced by, respectively, Daniel H. Mudd, currently a vice chairman and chief operating officer, and Robert Levin, currently an executive vice president.
Mudd vowed to “make things right” with regulators and Congress, the Washington Post reported.
"To my knowledge, the company has always made good-faith efforts to get its accounting right," Raines said in a statement released by the company. But he said he was holding himself "accountable" for the regulators' findings.
The board called Raines' exit a retirement and Howard's was termed a resignation. Now, controversy is swirling around the compensation packages. Raines will receive $1 million a year under the terms of his departure.
Ofheo also announced that Fannie Mae fell short of its minimum capital requirement by $2.98 billion. As of Sept. 30, Ofheo said, Fannie's capital totaled $28.86 billion. Starting in mid-2005, Fannie will have to hold 30 percent more capital than usual until the company meets the regulator's concerns about corporate governance and accounting policies.
Accounting changes required by Ofheo and the SEC were responsible for the shortfall as Fannie Mae was forced to recognize $9.18 billion in losses on derivative contracts.
Fannie Mae still faces investigations by Ofheo, the SEC, Justice Department and suits from shareholders. Fannie's problems are unlikely to have much immediate effect on the mortgage or housing markets, analysts say.
Leon Panetta, who served as Clinton's chief of staff from 1994 until 1997, told Bloomberg News that Raines fell victim to "the new reality of corporate governance. When there is a problem, you have to show that heads have rolled."
Raines will return to a top position in public service or business, his supporters said. "This is a bump in the road, I'm sure Frank will find his way," Panetta said. Raines is a director of Pepsico, the Purchase, N.Y.-based soft-drink and snack company, and Pfizer, the New York-based pharmaceutical maker.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.