Fannie Mae to Withhold Executives' Bonuses
WASHINGTON - Mortgage giant Fannie Mae is eliminating 2004 performance bonuses for 43 top executives, a move that will save the company millions of dollars, as it struggles to deal with major financial reporting problems.
The nation's biggest backer of home mortgages disclosed the move late Friday in a filing with the Securities and Exchange Commission. It said its board of directors had voted this week to eliminate cash bonuses that would have been paid to top executives for hitting last year's performance goals.
The company also said it was postponing the payment of company stock for superior performance to top executives "until the company has reliable financial data for prior fiscal years."
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In addition, it said, Leanne G. Spencer, Fannie Mae's top accounting officer, has "stepped down" from that position but remains in a lesser post.
The Fannie Mae board last month forced out the company's two top officials, chief executive Franklin Raines, and chief financial officer Timothy Howard following revelations that the company will have to restate some $9 billion of earnings, or about one-third of its profits, going back to 2001.
To begin making up that shortfall and increase the company's capital reserves, Fannie Mae announced Tuesday it was cutting its first-quarter dividend payment this year by half, to 26 cents per share.
It was the first dividend cut for Fannie Mae in more than two decades and is expected to save the company about $250 million a quarter.
Regulators in the Office of Federal Housing Enterprise Oversight ordered the company in September to boost its capital cushion, the amount of reserves it has to guard against financial losses, by some $5 billion by the middle of 2005.
Stefanie Mullin, a spokeswoman for the oversight office, said it had been informed of the board's action regarding bonuses and "we consider the action reasonable and appropriate."
Fannie Mae also confirmed Friday that its board voted to withdraw from a deal to develop a new office complex that had been expected to cost $500 million to $700 million and spur development in a rundown section of Washington.
In its new SEC filing Friday, Fannie Mae did not disclose the total amount in cash bonuses that were being eliminated, and Smith refused to give a figure other than to indicate it would be in the millions of dollars and would affect the company's 43 top executives.
In 2003, the top five officers at Fannie Mae alone received $8.2 million in cash bonuses.
The action by the board will mean that Raines and Howard will be denied cash bonuses they would have received for 2004. The board had come under heavy criticism for allowing both men to leave the company with lucrative severance packages.
Last month, Rep. Richard Baker, R-La., head of a House Financial Services subcommittee with jurisdiction over Fannie Mae, called on the oversight agency to "take action to recapture all bonus payments from executives that were awarded based upon the faulty and deeply flawed earnings statements of the enterprise."
Agency Director Armando Falcon told Baker last week that his agency planned to recover excessive bonus payments as part of its heightened scrutiny of Fannie Mae operations.
In addition to the continuing investigation of its accounting practices, Fannie Mae faces a civil investigation by the SEC, a criminal probe by the Justice Department and shareholder lawsuits.
Fannie Mae and its smaller rival, Freddie Mac, buy mortgages from banks and other lenders and sell some of them to investors in the form of mortgage-backed securities.
Freddie Mac is still sorting through its own accounting problems after it disclosed in June 2003 that it had misstated earnings by $5 billion.
The two government sponsored enterprises were created by Congress to provide more capital to the nation's housing markets.
The nation's biggest backer of home mortgages disclosed the move late Friday in a filing with the Securities and Exchange Commission. It said its board of directors had voted this week to eliminate cash bonuses that would have been paid to top executives for hitting last year's performance goals.
The company also said it was postponing the payment of company stock for superior performance to top executives "until the company has reliable financial data for prior fiscal years."
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In addition, it said, Leanne G. Spencer, Fannie Mae's top accounting officer, has "stepped down" from that position but remains in a lesser post.
The Fannie Mae board last month forced out the company's two top officials, chief executive Franklin Raines, and chief financial officer Timothy Howard following revelations that the company will have to restate some $9 billion of earnings, or about one-third of its profits, going back to 2001.
To begin making up that shortfall and increase the company's capital reserves, Fannie Mae announced Tuesday it was cutting its first-quarter dividend payment this year by half, to 26 cents per share.
It was the first dividend cut for Fannie Mae in more than two decades and is expected to save the company about $250 million a quarter.
Regulators in the Office of Federal Housing Enterprise Oversight ordered the company in September to boost its capital cushion, the amount of reserves it has to guard against financial losses, by some $5 billion by the middle of 2005.
Stefanie Mullin, a spokeswoman for the oversight office, said it had been informed of the board's action regarding bonuses and "we consider the action reasonable and appropriate."
Fannie Mae also confirmed Friday that its board voted to withdraw from a deal to develop a new office complex that had been expected to cost $500 million to $700 million and spur development in a rundown section of Washington.
In its new SEC filing Friday, Fannie Mae did not disclose the total amount in cash bonuses that were being eliminated, and Smith refused to give a figure other than to indicate it would be in the millions of dollars and would affect the company's 43 top executives.
In 2003, the top five officers at Fannie Mae alone received $8.2 million in cash bonuses.
The action by the board will mean that Raines and Howard will be denied cash bonuses they would have received for 2004. The board had come under heavy criticism for allowing both men to leave the company with lucrative severance packages.
Last month, Rep. Richard Baker, R-La., head of a House Financial Services subcommittee with jurisdiction over Fannie Mae, called on the oversight agency to "take action to recapture all bonus payments from executives that were awarded based upon the faulty and deeply flawed earnings statements of the enterprise."
Agency Director Armando Falcon told Baker last week that his agency planned to recover excessive bonus payments as part of its heightened scrutiny of Fannie Mae operations.
In addition to the continuing investigation of its accounting practices, Fannie Mae faces a civil investigation by the SEC, a criminal probe by the Justice Department and shareholder lawsuits.
Fannie Mae and its smaller rival, Freddie Mac, buy mortgages from banks and other lenders and sell some of them to investors in the form of mortgage-backed securities.
Freddie Mac is still sorting through its own accounting problems after it disclosed in June 2003 that it had misstated earnings by $5 billion.
The two government sponsored enterprises were created by Congress to provide more capital to the nation's housing markets.
posted by Kirby P at 3:11 PM
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