Fannie Mae Gets a New Chief Risk Officer
According to Wall Street Journal reporters, James R. Hagerty and Aparajita Saha-Burna, musical chairs are moving at the nation's giant mortgage house. Besides a new chief business officer and CFO, the former Senior Vice President for Credit Risk Oversight takes the lead on all things risk. Exiting the company is the former Chief Risk Officer ("CRO"). (See "Fannie Mae Names New Officers in Shake-Up, August 28, 2008)
Only two years, according to a May 18, 2006 press release issued by the Federal National Mortgage Association ("Fannie Mae") (ticker symbol FNM), the Chief Risk Officer now being replaced came onboard to lead the "credit market, counterparty and operational risk oversight for all business units within Fannie Mae." Before joining, he headed the market risk management efforts for "the chief investment office and retail financial services" at a large bank. In that same May 18 announcement, the then Chief Business Officer (now departing) commented on the new "One Fannie Mae" approach, "with a rigorous, unified and analytical discipline."
If you are not asking already, let me do it for you. What happened since 2006? Better yet, what happened?
The Fannie Mae website boasts a "Risk Policy and Capital Committee Charter" (last amended on November 20, 2007) that exists for the purpose of assisting the Board in "overseeing Fannie Mae's capital management and risk management, including overseeing the management of credit risk, market risk, liquidity risk, and operational risk." Members are charged with duties that include risk management oversight and recommendations relating to enterprise risk.
I repeat. What happened? Inquiring minds want to know - shareholders, taxpayers and oh yes, retirement plan participants.
As confirmed by the Pension Benefit Guaranty Corporation ("PBGC"), the Fannie Mae defined benefit plan is an insured plan. If financial woes continue (as suggested by some), could taxpayers be asked to fund a bailout of shareholders as well as a bailout of retirees (in the event that PBGC itself needs help)? (On December 8, 2007, this blog cited TheWashBiz Blog as saying that the Fannie Mae plan would be closed to new employees.)
In a related Wall Street Journal article (entitled "Pension Funds Watch Fannie, Freddie," August 28, 2008), reporter Daisy Maxey lists some public plan notables who hold more than a few shares. Here's another thought. Is a triple taxpayer play a possibility, if things get "too bad?"
- Taxpayers bail out Fannie Mae and Freddie Mac shareholders
- PBGC takes over Fannie Mae and Freddie Mac defined benefit pension plans
- Taxpayers bail out the PBGC (if the insurance premiums prove insufficient to pay retirees of "assumed" plans)
- State taxpayers are asked to help public plans that invested in Fannie Mae and Freddie Mac
As an aside, it would be quite interesting to know what kinds of risk management related questions were asked by pension plan investors of these government-sponsored entities ("GSE"). For those plans that are now exposed as the result of indexing, the situation is somewhat difficult. How can a plan exit a particular position if it has specifically allocated part of its portfolio to an identified index (part of a pure passive strategy) and that index includes a "troubled" security?
Editor's Note: The PBGC recently revised its investment policy to allow for some monies to be allocated to alternatives such as private equity. (This will be covered in an upcoming blog post.)
