Freddie Mac Fires Op Chief; CFO Leaves

Freddie Mac (FRE) shares were down after announcing management departures and bad news about earnings restatements early Monday.

The mortgage-finance company's chief financial officer, Vaughn Clarke, will resign, and the company's chief operating officer and president, David Glenn, has been fired due to questions about his honesty to the company's audit committee counsel.

Freddie Mac also said earlier restatements for fiscal 2000, 2001 and 2002 results will likely be completed by late in the third quarter.

Alcoa Inc. (AA) got a slight boost in pre-market trading despite conflicting research notes: Merrill Lynch upgraded it to buy and UBS downgraded it to neutral. Merrill said it sees "significant upside" opportunity for the company resulting from strong industry and company fundamentals and a low current valuation." But UBS said that while management is taking important steps to restructure operations, both aluminum and downstream markets could remain "challenging near-term."

Merrill has a $32 price target, while UBS has a target price of $21. Alcoa shares rose to $26.00, up 16 cents or under 1% from its Friday close of $25.93.

General Dynamics Corp. (GD) said it would buy Veridian Corp. (VNX) for a significant premium, sending shares of that company higher in early trading.

General Dynamics said the boards of both companies have already agreed to the offer of $35 a share. General Dynamics is an information systems specialists and Veridian is a technology services company that specializes in government agencies, such as the Department of Defense.

Veridian shares rose to $35.00, up $7.65 or 28% from its close of $27.35 while those of General Dynamics fell to $66.50, down 3% or $2.11 from its close of $68.61.

Accredited Home Lenders Holding Co. (LEND) increased its second-quarter and full-year guidance, citing a strong mortgage market.

The mortgage bank said it now anticipates earning $1.20 to $1.25 a share in the second quarter, up from previous estimates of 80 to 90 cents. One analyst surveyed by Thomson First Call expected Accredited Home to earn 89 cents a share, while another analyst predicted income of 90 cents a share.

DJ Freddie Mac/Execs -2: Vaughn Clarke Resigns As CFO

McLEAN, Va. (Dow Jones)--Freddie Mac (FRE) fired President and Chief Operating Officer David Glenn because of "serious questions about the timeliness and completeness of his cooperation and candor with the board's audit committee counsel."

The mortgage-finance company said in a press release Monday Vaughn Clarke retired as executive vice president and chief financial officer.

Freddie Mac also said it named Gregory J. Parseghian chief executive and president. The company named Shaun F. O'Malley nonexecutive chairman to replace Leland C. Brendsel, who retired as chairman and chief executive.

(MORE) Dow Jones Newswires

06-09-03 0753ET- - 07 53 AM EDT 06-09-03

The mortgage-finance company said in a press release Monday Vaughn Clarke retired as executive vice president and chief financial officer.

(MORE) Dow Jones Newswires 06-09-03 0753ET- - 07 53 AM EDT 06-09-03

DJ Freddie Mac/Execs -3: Regulatory Agency Begins Inquiry

Freddie Mac said it has informed its regulator, the Office of Federal Housing Enterprise Oversight, as well as the Securities and Exchange Commission and the New York Stock Exchange about the matters announced Monday. Freddie Mac said it is cooperating with the SEC, NYSE and OFHEO, which is charged with regulating the financial safety and soundness of both Freddie Mac and Fannie Mae (FNM).

In a statement on its Web site, OFHEO said its director, Armando Falcon Jr., sent a letter to Freddie Mac's board as a result of "management misjudgments that led to a misapplication of GAAP principles and disclosures of employee misconduct." OFHEO alleges misconduct involved "altering and failing to supply documents relevant to the restatement process."

In the letter dated June 7, Falcon called on Freddie Mac's board to explain its reasoning for what he described as "termination packages" for Brendsel, Clarke and Glenn in light of the circumstances surrounding their departure.

OFHEO set up an investigative team to review accounting practices relevant to the restatement process at Freddie Mac and to look into allegations of employee misconduct.

(MORE) Dow Jones Newswires 06-09-03 0823ET- - 08 23 AM EDT 06-09-03

DJ Freddie Mac/Execs -4: 'Misconduct' Discovered June 4

Falcon's letter also instructed Freddie Mac to make all communications to the board and management available about "deficiencies in accounting practices and an investigation of employee misconduct that was discovered on June 4."

Falcon noted in his letter that Freddie Mac's asset quality, capital positions and other measures remain strong.

Freddie Mac, which planned to discuss Monday's announcement in a conference call at 9 a.m. EDT, said it named Marty Baumann chief financial officer to replace Clarke. Baumann, 55 years old, had been made executive vice president, finance, in March. He will take over the restatement effort, Freddie Mac said.

The company tapped Paul T. Peterson, 53, as chief operating officer to replace Glenn. Peterson was executive vice president of Freddie Mac's single-family division.

Parseghian, 42, has been executive vice president and chief investment officer since June last year.

O'Malley, 67, is the retired chairman of Price Waterhouse LLP, which is Freddie Mac's auditor. He has served on Freddie Mac's Board since 2001 and is head of the committee overseeing the restatement process.

(MORE) Dow Jones Newswires 06-09-03 0902ET- - 09 02 AM EDT 06-09-03

DJ Freddie Mac/Execs -5: Shrs Down 17% In Premarket Trading

Freddie Mac said Monday it still hopes to complete a restatement of its financial results for 2002, 2001 and 2000 shortly after the end of the second quarter but the process might not be complete until later in the third quarter.

Freddie Mac said early this year that it would restate its financial results for 2002, 2001 and possibly 2000 due to certain accounting issues involving the hedging treatment of some transactions.

The company reiterated Monday that, all told, the restatements will likely materially increase reported earnings for prior periods and materially increase the corporation's capital surplus under its regulatory minimum capital requirements as of the end of 2002.

However, the company expects significant volatility in reported quarterly earnings for those periods. Adjustments affecting income will relate substantially to changes in the timing of income recognition and, consequently, Freddie Mac expects the overall increases related to the adjustments will have offsetting effects in future periods. The company also anticipates increased volatility in future periods.

Freddie Mac's Big Board-listed shares changed hands recently at $49.60 in premarket volume of about 500,000 shares, according to Instinet. The price is about 17% below the Friday close of $59.87.

Company Web site: http://www.freddiemac.com

-Tim Paradis; Dow Jones Newswires; 201-938-5400

(END) Dow Jones Newswires 06-09-03 0916ET- - 09 16 AM EDT 06-09-03

DJ OFHEO Deploys Team To Investigate Freddie Mac Matters

.

WASHINGTON (Dow Jones)--Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, said Monday he's deploying a special team to investigate all aspects of the issues surrounding the review of the re-audit of Freddie Mac (FRE) that revealed deficiencies in accounting practices and controls as well as to prove a "matter of employee misconduct" discovered last week.

In a letter to members of Freddie Mac's board, Falcon directed that Freddie Mac make available to OFHEO all communications to the board and management regarding deficiencies in accounting practices and an investigation of employee misconduct that was discovered on June 4.

Freddie Mac announced Monday that it has fired President and Chief Operating Office David Glenn because of "serious questions about the timeliness and completeness of his cooperation and candor with the board's audit committee counsel." The firm also said Leland Brendsel retired as chairman and chief executive officer and that Vaughn Clarke retired as executive vice president and chief financial officer.

Falcon directed the board to provide an explanation of its rationale for the termination packages for three individuals in light of the circumstances surrounding their departure from Freddie Mac - Brendsel, Clarke and Glenn. "The board and management will make clear to these individuals that their termination packages are subject to OFHEO approval," he said.

(MORE) Dow Jones Newswires
06-09-03 0814ET- - 08 14 AM EDT 06-09-03

DJ OFHEO/Freddie Mac -2: Review Of Freddie Mac Ongoing

.

In his letter to the Freddie Mac board, Falcon said OFHEO's review of the restatement process for Freddie Mac's financial statements is ongoing.

"During this review, I have become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees," Falcon said.

"The removal of members of the management team only goes a part of the way toward correcting serious problems - concerns surrounding management practices and controls remain," the OFHEO director said. "I believe additional actions must be taken by the board to address these matters."

Falcon said that "while Freddie Mac's asset quality, capital positions and other safety and soundness measures remain strong, conduct has occurred that is inconsistent with OFHEO's expectation of prudent management practices."

He directed the Freddie Mac board to provide OFHEO - the financial safety and soundness regulator for Freddie Mac and Fannie Mae - with plans to address reform of board oversight of management's supervision of accounting practices; personnel and systems changes, for implementing accounting services quality controls; and for a program for routine communications by the board with OFHEO on the progress of its remediation plan.

"The board should provide its plan of remediation to OFHEO for review and approval expeditiously," he said.

In saying he is deploying "a special team to investigate all aspects of the issues surrounding the review of the re-audit that revealed deficiencies in accounting practices and controls and the matter of employee misconduct discovered on June 4, 2003," Falcon said, "I expect the board and management's full cooperation with this initiative."

(MORE) Dow Jones Newswires
06-09-03 0834ET- - 08 34 AM EDT 06-09-03

DJ OFHEO/Freddie Mac -3: SEC, NYSE Also Investigating

.

OFHEO said Director Falcon sent his letter "as a result of management misjudgments that led to a misapplication of GAAP principles and disclosures of employee misconduct, specifically, altering and failing to supply documents relevant to the restatement process."

OFHEO said its special investigative team is headed by Stephen Blumenthal, counsel to the director, and will use personnel from various OFHEO offices, including the examination and legal staffs.

As previously reported, the Securities and Exchange Commission and the New York Stock Exchange also are investigating the matter.

"They are cooperating," an OFHEO spokeswoman said of Freddie Mac.

(MORE) Dow Jones Newswires
06-09-03 0843ET- - 08 43 AM EDT 06-09-03

DJ OFHEO/Freddie Mac -4: Freddie Alerted OFHEO Of Allegation

.

Freddie Mac brought the alleged employee misconduct to the attention of OFHEO, a spokeswoman for the regulatory agency said.

OFHEO Director Falcon, in his letter to Freddie Mac board members, said that "in the case of personnel terminated for misconduct, OFHEO would object to any re-employment of such individuals.

"Also, in the case of personnel terminated for misconduct, they should be made aware that OFHEO may hold them liable for indemnification to Freddie Mac for losses that may have resulted from their misconduct," Falcon added.

He directed Freddie Mac's management and board members to "be available to meet with OFHEO as necessary," and said OFHEO may meet with the board at its discretion.

"Until the remediation plan is fully implemented, OFHEO's special team will expect regular reports on actions taken by the board and management," Falcon said.

-By John Connor, Dow Jones Newswires; 202-862-9273; John.Connor@dowjones.com

(END) Dow Jones Newswires
06-09-03 0854ET- - 08 54 AM EDT 06-09-03

Investors Seek Safe Haven In Tsys After Freddie Mac News

.

By Joy C. Shaw

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Prices of U.S. Treasurys jumped across maturities Monday morning as Freddie Mac's leadership shakeup and earning restatement sent investors for cover in government securities.

Treasurys surged to session highs shortly after Freddie Mac's announcement, with benchmark 10-year notes up by 25/32 and the long bond up more than one full point.

But buying occurred in thin trading, traders say, and investors are still waiting for more information to better weigh the implication of Freddie Mac's announcement.

Housing finance agency Freddie Mac (FRE) said in a press release Monday morning that it fired President and Chief Operating Officer David Glenn because of "serious questions about the timeliness and completeness of his cooperation and candor with the board's audit committee counsel."

The mortgage-finance company said Vaughn Clarke retired as executive vice president and chief financial officer. Freddie Mac also said it named Gregory J. Parseghian chief executive and president. The company named Shaun F. O'Malley nonexecutive chairman to replace Leland C. Brendsel, who retired as chairman and chief executive.

Even though details of Freddie Mac's earnings restatement and circumstances behind the announcement are pending, the personnel shakeup of such magnitude immediately touched off a flight-to-quality in the Treasury market as investors speculated that the giant housing finance agency may be in trouble.

The buying in Treasurys has "a lot to do with the Freddie Mac story this morning," a Treasury trader said, adding that many investors are making quick assumptions that there many be questions in Freddie Mac's accounting.

Meanwhile, the incidence "will lead eyeballs turning toward Fannnie Mae (FNM) as well."

Brian Edmonds, global head of U.S. Treasury trading at Banc of America Securities in New York, said the Freddie Mac news is positive for Treasurys because it has created an "unknown."

But he said the market may be overreacting. "I think it's important but we have to get to the core of the issue regarding this restatement of earnings," he said.

Some profit taking was seen at price highs, Edmonds said. Still, at 9:15 a.m. EDT, Treasurys still held most of their gains, with 10-year notes up 15/32 at 102 25/32 to yield 3.30% and long bonds up 29/32 to 116 12/32 to yield 4.35%.

Two-year notes were up 3/32 at 100 3/32 to yield 1.19% and five-year notes up 8/32 at 101 30/32 to yield 2.21%.

Other parts of the government securities market saw smaller movements but were also affected by the news. Agency securities spreads were seen widening about 5 to 6 basis points.

Meanwhile, credit default protection levels for Freddie Mac were around 3 basis points wider, with the market waiting for more details to emerge, another trader said.

Five- and 10-year swap spreads also pushed wider by a basis point as Treasurys rally and agency spreads widen. Five- and 10-year swap spreads were last at 33.25 basis points and 34.25 basis points.

In the currency market, the euro also got a boost in the wake of the Freddie Mac announcement, trading at 1.1782.

Traders say whether the Treasurys market can hold gains will depend on more information from Freddie Mac, which is holding a conference call that began at 9 a.m. EDT.

-By Joy C. Shaw; 201-938-2137; joy.shaw@dowjones.com (Michael MacKenzy contributed to the article.)

(END) Dow Jones Newswires

06-09-03 0947ET- - 09 47 AM EDT 06-09-03

WSJ.COM WRAP: Freddie Mac Fires President After Probe

.
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

McLEAN, Va. (Dow Jones)--Under pressure from regulators over accounting procedures, Freddie Mac (FRE) said it fired its president because he wasn't fully cooperating with the company's audit and announced the resignation of its chief executive and chief financial officer.

The mortgage-finance company said Monday it had terminated President and Chief Operating Officer David Glenn because of "serious questions about the timeliness and completeness of his cooperation and candor with the board's audit committee counsel."

Freddie Mac also announced the resignation of Leland Brendsel, as chairman and chief executive, and Vaughn Clarke, as executive vice president and chief financial officer.

The shake up comes amid pressure from the Office of Federal Housing Enterprise Oversight, which regulates Freddie Mac. In a letter to the company June 7, OFHEO Director Armando Falcon said that he has "become increasingly concerned about evidence that has come to light of weakness in controls and personnel expertise in accounting areas and the disclosure of misconduct on the part of Freddie Mac employees." The agency is continuing its probe of Freddie and has assembled a special investigative team.

Freddie Mac in January announced plans to restate its earnings for at least the previous two years "materially" higher after its new auditor recommended certain changes to its accounting policies. The changes have been expected to slow the company's earnings growth during the next year.

Falcon sent his letter to Freddie Mac's board as a result of "management misjudgments that led to a misapplication of [generally accepted accounting principles] and disclosures of employee misconduct." The OFHEO alleges misconduct involved "altering and failing to supply documents relevant to the restatement process."

Freddie Mac named Gregory Parseghian, who has been chief investment officer since June 2002, as chief executive and president. Shaun F. O'Malley, the retired chairman of Price Waterhouse LLP, was named as nonexecutive chairman. Marty Baumann was named chief financial officer to succeed Clarke. Baumann has been executive vice president since March. The company tapped Paul Peterson, executive vice president of Freddie Mac's single-family division, as chief operating officer.

But Falcon said in his letter over the weekend that "the removal of members of the management team only goes a part of the way toward correcting serious problems - concerns surrounding management practices and controls remain."

The OFHEO set up a special investigative team to review accounting practices relevant to the restatement process at Freddie Mac and to look into allegations of employee misconduct.

The agency is also investigation "termination packages" for Brendsel, Clarke and Glenn in light of the circumstances surrounding their departures.

Falcon directed Freddie Mac to provide the OFHEO with plans to address: reform of board oversight of management's supervision of accounting practices; personnel and systems changes for implementing accounting services quality controls; and a program for routine communications by the board with the OFHEO on the progress of its remediation plan.

Falcon said, however, that "Freddie Mac's asset quality, capital positions and other safety and soundness measures remain strong."

Freddie Mac is a government-sponsored enterprise and a publicly traded company that buys mortgages from lenders to increase the flow of capital through the mortgage-finance system. In March 2002 it brought in PricewaterhouseCoopers LLP to replace its previous auditor, Arthur Andersen LLP.

After reviewing the company's books, the new auditor recommended Freddie Mac treat certain financial instruments, which rose in value, as assets rather than derivatives. Freddie uses derivatives - broadly, financial contracts whose value is designed to track the return on stocks, bonds, currencies or some other benchmark - to protect its mortgage portfolio from swings in interest rates.

As an asset, the market value of the instrument - as well as any income from it - must be recorded at the time it was purchased rather than over the life of the derivative. Previously, Freddie amortized the derivative over the life of the contract, and income was recognized over a period of time. As a result of the restatements Freddie will be recognizing certain income earlier, and its earnings will therefore be higher for those periods.

(END) Dow Jones Newswires
06-09-03 1027ET- - 10 27 AM EDT 06-09-03

Freddie Mac Shakeup Leaves Lingering Questions

.
By Frank Byrt
Of DOW JONES NEWSWIRES

BOSTON (Dow Jones)--The management shakeup at Freddie Mac (FRE) apparently leaves as many questions as answers, although the replacement of several top executives is seen as a move to begin to clear the air.

Mortgage underwriter Freddie Mac, McLean, Va., said Monday that it fired President and Chief Operating Officer David Glenn and that Vaughn Clarke resigned as executive vice president and chief financial officer after the government-sponsored entity's accounting procedures and management decisions came under fire from the Office of Federal Housing Enterprise Oversight.

Freddie Mac also said it named Gregory J. Parseghian, the former head of risk management, chief executive and president.

And Freddie Mac named Shaun F. O'Malley nonexecutive chairman to replace Leland C. Brendsel, who retired as chairman and chief executive this morning.

Typical of some of the early response to the shakeup is that of analyst Mike McMahon of Sandler O'Neill & Partners LP. "In the grand scheme of things, I see the management change as very positive for Freddie (Mac) and the right thing to do to regain investor confidence and analyst confidence."

He said that Freddie Mac's management has been "clearly inferior" to Fannie Mae's (FNM) for many years and that has resulted in Freddie Mac having "market share" issues vs. its chief competitor.

But McMahon, who has rated Freddie Mac a hold for several months, said he finds it impossible to give an earnings outlook since the accounting issues are unresolved.

Similarly downbeat, Bear Stearns this morning lowered its rating to peer perform from outperform on the news of the management shakeup.

It cites concern over "the board's indications that there were very serious problems uncovered during the reaudit process," and it said that uncertainty over earnings and accounting issues remains.

But UBS Investment Research was more optimistic. It reiterated its buy-1 rating today and gave a price target of $105. It said in a research note this morning that the management changes "are a positive," and that "Greg Parseghian is the key employee at the company and certainly one of the best interest rate risk managers in the country.

"We would be surprised if this view isn't shared by (Wall) Street and by most knowledgeable investors."

Freddie Mac officials hosted a conference call for analysts this morning to discuss the changes.

(MORE) Dow Jones Newswires
06-09-03 1057ET- - 10 57 AM EDT 06-09-03

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.