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Category: Mortgage
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In midst of Freddie Mac crisis, Richard Syron tries to salvage his rep
Until a few weeks ago, it’s likely that many people weren’t quite sure what (or who) Freddie Mac, a giant player in the secondary mortgage market, was.
But that’s changed, as Freddie Mac and its larger counterpart, Fannie Mae, have been swept up in the ongoing credit and mortgage crisis.
Hint: Click in map to explore connectionsStory continues below interactive map
MAP HINTS: Click expands a name. Control+Click centers map on a name. Solid lines are current relations. Dotted lines are former relations. For advanced tools choose Tools > Options from the menu at top. More help. Not seeing the maps? Please go here to check for the latest version of Java.Freddie Mac, shorthand for the Federal Home Loan Mortgage Corporation, announced Wednesday a second quarter loss of $821 million and an 80 percent cut in its dividend.
The news came a day after The New York Times reported that Richard F. Syron, the corporation’s CEO, had ignored warnings in 2004 about the risks associated with some loans.
The story has placed added attention and blame on Syron, the former head of the American Stock Exchange and an assistant to Paul Volcker when Volcker was chairman of the Federal Reserve.
When he joined Freddie Mac in 2003, Syron, 64, brought with him a reputation as someone who knew politics and who knew the financial markets. He also had experience turning around companies with problems.
He inherited and reportedly cleaned up accounting problems at Freddie Mac and revitalized its board of directors.
Syron was paid well for his work, earning $18.3 million last year.
In the Boston Globe Tuesday, Syron argued that he has kept Freddie Mac true to its mission of making housing available to people in need.
“If you’re going to take aid to low-income families seriously, then you’re going to make riskier loans. We have goals to meet,” Syron told the paper.
He spoke in reaction to the Times story.
It reported that in 2004, David A. Andrukronis, then Freddie Mac’s chief financial risk officer, told Syron that the company was purchasing bad loans “that would likely pose an enormous financial and reputation risk to the company and the country.”
The warning proved to be prophetic as Freddie Mac’s holdings, like those of Fannie Mae, lost significant value this year as housing prices continued to drop and more people began to default on mortgages.
When the stock prices of both companies plummeted last month the Treasury Department led by Henry M. Paulson Jr. stepped in with a plan to inject billions of dollars into the company should they need the funds.
Syron has said that he doesn’t believe Freddie Mac will need the government’s help, as the company hopes to raise $5.5 billion from investors.
Syron had planned on leaving Freddie Mac last year, but he has agreed to stay on through 2009 while the organization hunts for his successor.
“I’ve had four other jobs as CEO, and I came out of them pretty well,” Syron told the Times. “What I’m working for right now is to save my reputation.”
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IndyMac failure to cost FDIC $4 billion to $8 billion
Federal regulators closed IndyMac Bank Friday afternoon and transferred operation to the Federal Deposit Insurance Corporation.
Hint: Click in map to explore connectionsStory continues below interactive map
MAP HINTS: Click expands a name. Control+Click centers map on a name. Solid lines are current relations. Dotted lines are former relations. For advanced tools choose Tools > Options from the menu at top. More help. Not seeing the maps? Please go here to check for the latest version of Java.With $32 billion in assets, it was the second largest deposit institution to close in U.S. history, according to a release from the Office of Thrift Supervision. Only the 1984 failure of Continental Illinois, with $40 billion in assets, was larger.
In a separate release, the FDIC estimated that the failure will eventually cost the agency’s insurance fund between $4 billion and $8 billion.
“This institution failed today due to a liquidity crisis,” OTS Director John Reich said in the release. “Although this institution was already in distress, I am troubled by any interference in the regulatory process.”
He referred to the public release June 26 of a letter from New York Senator Charles Schumer to the OTS and FDIC worrying about the viability of IndyMac.
In the following 11 business days, the OTS said, depositors withdrew more than $1.3 billion from their accounts.
IndyMac’s failure had been widely expected. IndyMac Bancorp CEO Michael Perry did, indeed, have the toughest job in America this week.
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IndyMac’s Michael Perry has the toughest job in America
To say IndyMac CEO Michael Perry is in a tough spot is an understatement. He might be on a mission impossible.
Hint: Click in map to explore connectionsStory continues below interactive mapMAP HINTS: Click expands a name. Control+Click centers map on a name. Solid lines are current relations. Dotted lines are former relations. For advanced tools choose Tools > Options from the menu at top. More help. Not seeing the maps? Please go here to check for the latest version of Java.Consider just a few of the recent headlines about his California-based company, caught in the mortgage meltdown:
“IndyMac Begins Dismantling Business”
“Analysts have zero hopes for IndyMac”
“IndyMac Bancorp shares dip; analyst sets $0 target”
Tom Petruno, a blogger for the Los Angeles Times, does find one saving grace. IndyMac is offering a yield “bonanza” on CDs as it tries to hang onto deposits.
This week, IndyMac said it was cutting its work force in half as it tries to salvage itself.
IndyMac started doing business in 1985 as a unit of Countrywide Financial, which was recently purchased by Bank of America. Former Countrywide CEO Angelo Mozilo recruited Perry to head IndyMac and said Perry was “like my son.”
As the mortgage mess initially unfolded, IndyMac tried to build market share by expanding while others in the troubled industry shrank. But that strategy failed.Through the past difficult year, the company’s board of directors has remained stable. Most of the directors of IndyMac Bancorp, including former pro football quarterback Pat Haden, are also directors of its banking unit, IndyMac Bank.
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Bonderman looks long term with Washington Mutual (Muckety)
Washington Mutual shareholders approved a $7 billion infusion from TPG and other investors yesterday, thereby blessing — they had little choice — the return of Texas deal maker David Bonderman to the company’s board of directors. The decision came on a day when WaMu stock hit a 16-year low.
Hint: Click in map to explore connectionsStory continues below interactive map
MAP HINTS: Click expands a name. Control+Click centers map on a name. Solid lines are current relations. Dotted lines are former relations. For advanced tools choose Tools > Options from the menu at top. More help. Not seeing the maps? Please go here to check for the latest version of Java.TPG co-founder Bonderman, who started his investment career with Robert Bass in Fort Worth, has made it clear that his interest in Washington Mutual is long term.
“Where WaMu gets to is more important than when it gets there,” he told the Financial Times last week. “This is the strength of private equity. We can be patient.”
Analysts estimate that the Seattle-based lender faces billions more in loan losses over the next few years.
Bonderman’s first tour of duty on the WaMu board ran from 1997 to 2002 after Washington Mutual bought American Savings & Loan. Bonderman had been with the Robert M. Bass Group when it bought the insolvent S&L from the federal government in 1988.
The TPG deal with WaMu was announced in April. Gretchen Morgenson, writing in The New York Times, has called it a “sweet package” for TPG and other investors, even though the price of WaMu stock has declined since the deal was made.
In the FT article, reporter Henny Sender called Bonderman and his TPG partner, James Coulter, “probably the most successful-ever private equity investment team.” Last year, TPG completed the buyout of TXU, one of the largest electric utilites in the United States. Sender’s article is worth reading just for the anecdote about how Bonderman’s partners have “banned him from setting foot in Japan.”
Bonderman’s position on the WaMu board gives it a decidedly North Texas tilt. Director Tom Leppert is the mayor of Dallas and Regina Montoya lives in Dallas. Bonderman lives in Fort Worth.
([Muckety](https://createpositivechange.org/2008/06/25/bonderman-looks-long-term-with-washington-mutual/3672)
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Mortgage crisis helped John Paulson reap $3.7 billion (Muckety)
A bad year for homeowners meant a good year for John A. Paulson.
Paulson, the founder and president of the hedge fund Paulson & Company, made $3.7 billion last year, according to an annual listing of the 50 most highly paid hedge fund managers.
The list compiled by Institutional Investor’s Alpha Magazine was previewed on the magazine’s website yesterday.
Paulson acquired his money by betting against the subprime mortgage market, using a complicated system that increased his earnings as the value of financial instruments bundling the mortgages dropped.
In other words, as the world got poorer, Paulson got richer.
He was by no means alone.
The list of top managers shows four other billion-dollar earners.
George Soros, of Soros Fund Management, made $2.9 billion last year, followed closely by the 2006 leader, James H. Simons of Renaissance Technologies at $2.8 billion.
Philip Falcone of Harbinger Capital Partners earned $1.7 billion and Kenneth Griffin of Citadel Investment Group came away with $1.5 billion.
The average compensation for the top 25 fund managers last year was $892 million, according to the survey.
The report of this wealth stands in contrast to other recent news about home foreclosures, record-high oil prices and food shortages in some parts of the world.
Even Wall Street is a little “uneasy” that some individuals are doing so well because others are doing so badly, the New York Times reported.
“There is nothing wrong with it – it’s not illegal,” William H. Gross, the chief investment officer of the bond fund Pimco, told the newspaper. “But it’s ugly.”
The Wall Street Journal wrote in January that Paulson had told friends he was going to increase his charitable giving to help those in need.
In October 2007, he donated $15 million to the Center for Responsible Lending. That money was to help families about to lose their mortgages.
“While we never made a subprime loan and are not predatory lenders, we think a lot of homeowners have been victimized,” Paulson told the Journal.
Paulson, 52, who is not related to U.S. Treasury Secretary Henry M. Paulson Jr., began his investment career at Odyssey Partners. He moved on to Bear Stearns, where he was in mergers and acquisitions. From there, he went to Gruss Partners, the investment firm.
In 1994, Paulson started Paulson & Co. with $2 million. By the end of last year, the firm had $28 billion in assets, an increase in $22 billion from the previous year, the Times reported.
In January of this year, Paulson & Co. made news by appointing Alan Greenspan, the former chairman of the Federal Reserve, to its advisory board.
The appointment was panned by some. They said that Greenspan had switched sides by joining up with a company that had profited from the failure of low-interest policies that he had advocated while leading the Federal Reserve.
([Muckety](https://createpositivechange.org/2008/04/17/mortgage-crisis-helped-john-paulson-reap-37-billion/2212)
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Questions about Countrywide-Bank of America deal
Countrywide Financial reported Friday that its mortgage foreclosure rate doubled last month compared to a year ago.
That prompted the Charlotte Business Journal to ask Bank of America if it was going forward with its roughly $4 billion stock deal to acquire Countrywide, the nation’s largest mortgage lender.
Yes, responded a spokesman for Bank of America, which is based in Charlotte. “We conducted extensive due diligence,” he told the Business Journal. (Story continues below interactive map.)
MAP HINTS: Click expands a name. Control+Click centers map on a name. Solid lines are current relations. Dotted lines are former relations. For advanced tools choose Tools > Options from the menu at top. More help. Not seeing the maps? Please go here to check for the latest version of Java.That wasn’t the only question about the deal.
In its story about Countrywide’s increased foreclosure rate, The Wall Street Journal reported that Bank of America’s takeover still has several hurdles. The Journal said SRM Global Master Fund LP plans to vote against the deal because it undervalues Countrywide.
SRM, a hedge fund, holds 5.5 percent of Countrywide, founded by CEO Angelo Mozilo in 1969.
Read related stories: Business · Mortgage · Subprime
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