UPDATE: Rep Frank Demands Cancellation Of Fannie, Freddie Bonuses
March 20 2009 - 6:40PM
Dow Jones News
U.S. House Rep. Barney Frank, D-Mass., called on the regulator
for Fannie Mae (FNM) and Freddie Mac (FRE) to cancel employee
bonuses under the companies' retention programs.
In a letter Friday, Frank urged Federal Housing Finance Agency
Director James B. Lockhart to rescind any bonuses already paid
under the program and to stop any further payments.
"The public, having provided significant support for the purpose
of restoring trust and confidence in our country's financial
system, rightfully insists that large bonuses such as these awarded
by institutions receiving public funds at a time of a serious
economic downturn cannot continue," Frank wrote in the letter.
The move comes after $165 million in bonuses paid to employees
at American International Group Inc.'s (AIG) Financial Products
division ignited a political firestorm this week. The House on
Thursday approved legislation to tax at 90% any bonuses to
employees earning more than $250,000 at firms that have received at
least $5 billion in aid from the government's financial rescue
program.
Fannie and Freddie, which will have received a total of $60
billion in taxpayer funds under a separate government program, are
covered under the legislation. Fannie announced this week in a
regulatory filing that it plans to pay bonuses of at least $1
million each to four executives.
Lockhart defended the bonuses in a letter Friday responding to
Frank's, saying they went to employees at all levels of the firms
and that care was taken to ensure they weren't excessive. He warned
that rescinding them could create "great risk of these same
employees deciding this is the last straw and walking away."
Lockhart said he discussed Frank's demand with the chief
executives of both companies and the directors of one of the firms,
all of whom came on board after the companies were put into
conservatorship. He said they were in agreement that the retention
programs were crucial for ensuring that Fannie and Freddie are
viable and able to perform their role in righting the housing
market.
"We believe that FHFA would be violating its duties as
conservator to end the retention plans and allow Fannie Mae and
Freddie Mac to be hollowed out. There are no other financial
institutions that can replace them in this critical time for the
nation's economy," Lockhart wrote.
Lockhart said the retention programs were established with the
help of an outside pay consultant to ensure that a broad swath of
employees didn't desert the firms after they were seized by the
government.
He said that more than 5,000 employees at Fannie were promised
an average of $21,000 in retention pay spread over the first year
and a half of the conservatorship. During that period, 4,000
employees at Freddie will receive on average $19,000 in retention
pay.
Lockhart insisted the pay wouldn't go to those who made
decisions that triggered mounting losses at the companies.
"Retention payments are not a reward for the past. Unlike other
financial institutions, I made the decision not to pay severance to
departing CEOs," he wrote.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com