Freddie Mac fires president
WASHINGTON (AP) – Mortgage-market giant Freddie Mac announced Monday that it had fired its president because he didn’t fully cooperate with an internal review of the company’s accounting, now being investigated by federal regulators. In a surprise shakeup, the company said it had fired the president and chief operating officer, David Glenn, and that chairman and chief executive Leland Brendsel had resigned. Vaughn Clarke, the company’s executive vice president and chief financial officer, also resigned.
Freddie Mac said it had dismissed Glenn “because of serious questions as to the timeliness and completeness of his cooperation and candor” with attorneys engaged in January by the board of directors’ audit committee to review the accounting problems.
The company doesn’t believe that fraud or criminal misconduct were involved, Freddie Mac’s new chief executive officer and president, Gregory Parseghian, told shareholders, financial analysts and reporters in a conference call Monday.
In a market that has been roiled over the past year or so by a wave of corporate accounting scandals, news of the shakeup at Freddie Mac exacerbated a decline on Wall Street Monday – as did an earnings warning from Motorola.
But Gary Gordon, an analyst with investment firm UBS, called the management changes “a positive.” The firm did not change its “buy” rating for McLean, Va.-based Freddie Mac. “Greg Parseghian is the key employee at the company, and certainly one of the best interest-rate risk managers in the country,” Gordon said. “We would be surprised if this view isn’t shared by (Wall) Street and by most knowledgeable investors.”
Business Week magazine recently ranked Freddie Mac No. 16 on its list of the top 50 best-performing companies, and it has been recognized as among the most hospitable companies for minority employees and working mothers.
In January, Freddie Mac restated its earnings for 2000-2002, after its new auditor recommended changes to its accounting policies to reflect higher earnings from the complex financial instruments called derivatives.
The federal agency that oversees Freddie Mac, the Office of Federal Housing Enterprise Oversight, is investigating the company’s accounting. In a letter to the company over the weekend, agency Director Armando Falcon said he has “become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees.”
Earlier this year, Federal Reserve Chairman Alan Greenspan expressed concern that Freddie Mac and its larger sister in the home mortgage market, Fannie Mae, may not have adequate capital and that many investors have the misperception that they are backed by the government.
The two, which are major players in the multibillion-dollar home mortgage market, were created by Congress to buy home loans from banks and other lenders to supply ready cash.
They buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.
Derivatives, whose value depends on the value or change in value of an underlying security, commodity or asset, are used by businesses to guard against losses from unexpected market movements and by investors to speculate.
Fannie Mae and Freddie Mac use them to hedge interest-rate risks.
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On the Net:
Freddie Mac: http://www.freddiemac.com
Fannie Mae: http://www.fanniemae.com
Office of Federal Housing Enterprise Oversight: http://www.ofheo.gov