Wednesday saw Fannie Mae file its 10-K financial statement for 2005. This was accompanied by a blizzard of information that will take a while to digest. The headline story was that CFO Bob Blakely would be replaced at the end of this year by Stephen Swad, who was CFO of AOL. Blakely and Swad make a pretty convincing case on the conference call that they know what they’re doing, and sound confident that Fannie will be a "timely filer" as of next March 15th. I think Rep Baker [8] is wrong to think the Blakely situation is comparable to yesterday’s announcement that Freddie COO McQuade was leaving.

That will have to be the limit of this Doomer’s speculation for now. As is customary with a DoomWatch, what follows in the references (and perhaps comments) will be Fannie’s own information, the raw reaction MSM articles and perhaps some blog posts. There should be plenty of stuff to ponder over the next few days. If you find more links, or have some insight as to what this all means, just drop your contribution in the Reply box. Twist and I are eager to hear what you think of all this.

On a different but related topic, late yesterday CountryWide and Wells Fargo [not Fannie & Freddie as I had before, jm] announced they would not go with Sen Dodd’s seven point rescue plan for subprime.[12] Lots of GSE stuff these last couple of days!

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Notes and References

[1]: "News Release: Fannie Mae Files 2005 10-K: Company Will Host Investor/Analyst Conference Call", Fannie Mae, May 2, 2007. Includes links to the expanded news release, a "readers guide" to the report, and the 10-K itself in PDF format.

[2]: Webcast: Fannie Mae Investor/Analyst Conference Call, Wednesday, May 2, 2007, 1:30 p.m. ET, NYSE Ticker Symbol: FNM, Fannie Mae, 1 hour (time stamp starts about 0:48), click on Listen to Webcast to get to the page to start listening. You will need to register (name, e-mail, company) to listen.

– Dan Mudd described the CFO handover in some detail. Blakely will sign off on ‘06, the last "historical" 10-K, Swad will sign off on ‘07, the first new timely 10-K.

- Dan Mudd "tells the story" of ‘05, market share, subprime, etc. in an interesting way.

- around 1:26:30 Enrico(?) describes that 11% of Fannie’s Single Family book of business is "high quality" Alt-A. His response (to a question) might be worth a listen.

 

[3]: "Fannie Mae profit rises for 2005", by Marcy Gordon, AP / Houston Chronicle, May 2, 2007.

Fannie Mae, which finances one of every five home loans in the United States, reported Wednesday its profit rose 26 percent in 2005, but expects to report lower earnings for 2006. It also named a new chief financial officer and raised its dividend.

The government-sponsored company is remaking itself as it recovers from a multibillion-dollar accounting scandal. The 2005 report was its first public reckoning of finances since it announced a restatement in December that erased $6.3 billion in previously reported profit for 2001-2004.

The company, which undertook a massive reworking of its accounting after the scandal became known in September 2004, expects to file its 2006 results before the end of the year.

Fannie Mae said Stephen Swad, a former executive vice president and CFO of Internet company AOL, will succeed Robert Blakely as its CFO. Company officials said that Blakely — who came in November 2005 to direct the untangling of the company’s accounting — has largely completed that task.

 

[4]: "Fannie Mae Says May Report ‘06 Financials Early", by Patrick Rucker and Julie Haviv, Reuters, May 2, 2007.

Once Fannie Mae completes its 2006 financial report and returns to timely filing with the government, it will have largely put to rest 3 years of accounting problems that have weighed on the company and its stock price.

 

[5]: "SEC begins to distribute funds in Fannie Mae settlement", by Neil Adler, Bizjournals, May 2, 2007.

The Securities and Exchange Commission has begun the process to distribute a $357 million fund created as part of a settlement last year with Fannie Mae stemming from charges of financial fraud in connection with the preparation of its annual and quarterly financial statements.

The distribution is expected to be completed by October, according to the SEC.

 

[6]: "Money Going to Fannie Mae Investors", AP / Houston Chronicle, May 2, 2007.

Money is beginning to be distributed to shareholders hurt by the alleged accounting fraud at Fannie Mae under the record $400 million settlement signed last year with the mortgage giant, federal regulators announced Monday.

 

[7]: "Fannie Mae taps former AOL finance chief", by Jeff Clabaugh, Bizjournals, May 2, 2007.

Fannie Mae, which filed its 2005 financial reports Wednesday, says it has named Stephen Swad chief financial officer.

Swad will replace Robert Blakely, who will step down later this year following a transition period. Blakely, a former MCI finance chief, joined Fannie Mae in January 2006. Swad, who served as chief financial officer at AOL from 2003 to February of this year, will serve as chief financial officer designate until Blakely’s departure.

 

[8]: "US Rep. Baker sees GSE executive turnover as sign of the times", by Damian Paletta, MarketWatch, May 2, 2007.

U.S. Rep. Richard Baker, R-La., said Wednesday the announced resignations of two top-ranking Fannie Mae and Freddie Mac executives could be a sign of the changed regulatory and legislative environment in which the government-sponsored enterprises operate.

 

[9]: "Fannie Mae to release 2006 10-K before year end", by Marine Cole, Marketwatch, May 2, 2007.

"We are reviewing our original timeline to see how we can accelerate 2006," said Fannie Mae Chief Executive Daniel Mudd in a conference call discussing the filing of its 2005 annual report.

He added that more details on the exact timing should be available next month.

 

[10]: "Fannie Mae Releases 2005 Financial Results: Troubled Firm Also Appoints New CFO With Background in Accounting", by Howard Schneider. Washington Post, May 2, 2007.

But more importantly, the release marks another milestone in the company’s effort to work through an accounting scandal that prompted the ouster of its top management and raised allegations that Fannie Mae executives had manipulated the books in order to maximize their bonuses. Federal authorities are trying to recoup tens of millions of dollars in bonuses from former Fannie chief executive Franklin D. Raines. The company itself paid $400 million in penalties to settle with the Securities and Exchange Commission.

 

[11]: "Fannie Mae Files 2005 Report; Announces Departure of CFO", by Damian Paletta, Wall Street Journal (subscription required), May 2, 2007.

[12]: "Big US mortgage firms won’t back subprime principles", by Patrick Rucker, Reuters, May 2, 2007.

The two largest mortgage lenders in the United States [CountryWide and Wells Fargo] have declined to endorse a set of principles that would help troubled subprime borrowers avoid foreclosure, a lawmaker [Sen Chris Dodd] who proposed the principles said on Wednesday.