Freddie Mac chief executive to resign
By Kathleen Day
Washington Post
WASHINGTON — Freddie Mac chief executive Gregory Parseghian will resign, the company announced yesterday, as the mortgage lending giant bowed to pressure from its regulator and ousted its top executive for the second time in less than three months.
An exchange of letters between Armando Falcon, the outgoing head of the Office of Federal Housing Enterprise Oversight, and the company's board of directors ended a tense three days of meetings in which the regulators demanded Parseghian and longtime general counsel Maud Mater be replaced.
Parseghian, who became chief executive in June when the board forced out CEO Leland Brendsel and two other executives in the midst of a restatement of finances, will stay on until a successor is found, a company spokesman said.
Sources said Falcon and his investigators concluded Parseghian and Mater had to go because of their role in the accounting and disclosure problems.
The Freddie Mac board made it clear in its statement that they were forced to make the change.
"We want to thank Greg Parseghian for his outstanding contributions to this company, first as chief investment officer and most recently as our CEO," said Board Chairman Shaun O'Malley. "But after discussions with our regulator and Greg, we believe it is now in the interest of the company to accede to OFHEO's directive."
Parseghian said in the statement he was "committed to ensuring a successful leadership transition."
Though Falcon also directed that Mater be replaced, sources said Parseghian and others at Freddie Mac had already decided she would have to leave because she failed to assure proper disclosure of some of the complex financial transactions uncovered in an internal company investigative report released last month.
The report found that improper accounting and disclosure contributed to errors that will force the company to restate earnings by as much as $4.5 billion for the past three years.
The errors led to a management shake-up in June, when Brendsel and the company president and chief financial officer were forced out.
The board's decision to name Parseghian was controversial, with some investors arguing that his role in the accounting and disclosure problems should have disqualified him. The report found that he had approved some of the strategies used by the company to negate the effects of a new accounting rule executives feared would make Freddie Mac earnings appear too volatile.
It's unclear how much Parseghian will receive in severance pay, but government and company sources say it's likely to be in the millions of dollars. The regulators will have to approve his final compensation as well as any further relationship Parseghian has with the company, Falcon's letter said.
Paul Miller, an analyst at Friedman, Billings, Ramsey, said some investors believe Parseghian, who for more than seven years has headed the company's trading and investment division, would be difficult to replace. Miller said he doesn't share that view. "I don't think it's going to be as tough as a lot of people believe. But investors and the bond market, they don't like uncertainties. This is what the board was trying to get away from, the uncertainty of who's going to run the company," he said.
Financial consultant Bert Ely faults the board for failing to act sooner. "The problem is that we have a board that has not performed well. They were asleep at the switch with regard to the earnings management issue. They apparently were not asking tough questions about what was going on," he said.
The investigative report said top management withheld key information from the directors.
The decision to remove Parseghian comes after a difficult nine months for Freddie Mac, which has promised to operate more openly as it fights to restore its credibility. In January the company announced it would have to restate earnings for the past three years, prompting investigations by OFHEO, the Securities and Exchange Commission and the Justice Department.
The company's stock closed yesterday at $49.47, down 23 percent since Jan. 21, the day before the accounting errors were announced.
Post staff writer David S. Hilzenrath contributed to this article.
