Fannie’s 2004 10-K
In Episode XI back on October 16th I profiled new Fannie CFO Bob Blakely. He came across as a highly focussed, no nonsense trouble-shooter of industry’s worst accounting fiascos. Well, I guess he’s not just another pretty face. Yesterday he delivered Fannie’s Form 10-K for 2004.
The announcement took the form of a press release [1] on Monday. This was covered in an article [2] by Reuters. The form was delivered on schedule yesterday. The headline figure is that the restatement will cost Fannie $6.3 billion for 2004. The good news is that this is nearly $3 billion less than previously feared.[3]
Also yesterday, an Associated Press story [4] proclaimed an end to the Fannie Mae accounting scandal. AP reporter Marcy Gordon has been following this story for several years, and hopefully he’ll stay around for further developments. Strictly speaking, it is correct to say this ends the scandal, because the activities to now found fradulent have all occurred in 2004 or earlier. The 2005 financials are just very late, and it will be a mighty challenge to get the 2006 10-K ready by the deadline, March 15, 2007.
I note in passing that the timing of the submission, just a day ahead of today’s ending of the lame duck Congressional session, was perhaps a bit ingenuous. Adding a great mass of information at this late date when GSE reform was still at least theoretically in play looks a little bit like a strategic move. Nevertheless, Blakely and the accountants deserve high marks for effort and progress. As well, analysis of the ’04 10-K should go a long way toward understanding the state of health of America’s second largest financial institution.
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Notes and References
[1]: "Fannie Mae Announces Scheduled Release of 2004 10-K With Restatement Results: Company Will Host Investor/Analyst Conference Call", Press Release, PRNewswire, source: Fannie Mae, December 4, 2006.
"Fannie Mae (NYSE: FNM) announced its intent to file its 2004 10-K with restatement results with the Securities and Exchange Commission on Wednesday, December 6 after the market closes.
The company also intends to host a conference call for the investment community on Thursday, December 7 at 1:00 p.m. (EST) to discuss the filing. Mary Lou Christy, Vice President and Interim Head, Investor Relations, will host the call. Daniel H. Mudd, President and Chief Executive Officer, Robert T. Blakely, Chief Financial Officer and David Hisey, Senior Vice President and Controller, will address investors and analysts. They, along with other members of senior management, will be available for questions."
[2]: "Fannie Mae says to file restatement with SEC on Wed", Reuters, December 4, 2006.
"The restatement, which is expected to cost around $1.3 billion, has been a two-year ordeal for the embattled company involving hundreds of outside accountants and consultants. "
[3]: "Fannie Mae Completes Restatement", TheStreet, December 6, 2006.
"Fannie Mae filed its long-awaited Form 10-K for 2004 and completed its restatement, saying $6.3 billion in past retained earnings will be wiped out.
The Congressionally chartered mortgage company said losses through Dec. 31, 2004, associated with its accounting for derivatives totaled $7.9 billion. However, that was nearly $3 billion less than it had previously estimated."
[4]: "Fannie Mae Erases $6.3 Billion in Profit in Restatement Bringing End to Accounting Scandal", by Marcy Gordon, Associated Press, December 6, 2006.
"The completion of the restatement ‘is a key step forward for the company and represents two years of hard work,’ OFHEO Director James B. Lockhart said in a statement Wednesday. ‘Much remains to be done. … Fannie Mae faces enormous challenges in fixing its operational and risk management systems, in (financial controls) compliance, and in producing audited financial statements for 2005 and 2006.’ "
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Nice article John. I’d overlooked this important piece of news yesterday. Leave it to you to note the timing!
Thanks too for the well-researched update. Do you think the US financial system dodged a bullet, or is there more to this than meets the eye?
Spud -
I think they dodged that bullet, but the 2005 and especially 2006 (when house prices started back down) will present challenges. Thomas Inman, another Fannie whistle-blower, has emerged in the midst of this week’s events, and it will be interesting to see what happens there.