Two financial markets heavyweights now occupy the corner offices at Fannie Mae and Freddie Mac.
The chief executives of Fannie Mae and Freddie Mac are being replaced as part of the US treasury’s bailout of the mortgage giants, with Herb Allison taking over from Daniel Mudd at Fannie Mae and David Moffett coming in place of Richard Syron at Freddie Mac.
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Allison and Moffett bring some fresh blood and much-needed financial and organizational nous to the ailing US mortgage lenders. That’s bound to be helpful. Allison’s experience running much of Merrill Lynch and Co. Inc. in the 1990s, and as chairman of investment firm Tiaa-Cref for much of this decade, should put him in good stead at Fannie Mae.
Meanwhile, Moffett spent 14 years as finance chief at US Bancorp — one of the few banks to have avoided the worst effects of the credit crunch. That fostered the credit and asset-liability management skills that reportedly put him on the shortlist to be Wachovia Corp.’s new boss earlier in the summer and that should prove invaluable to Freddie Mac.
Good though all this is, the chief executive role at both mortgage firms has been emasculated: the government is calling the shots via the conservatorship of the Federal Housing Finance Agency, which has already decreed that both will, as of 2010, have to reduce their balance sheets by 10% a year. A future White House administration or Congress might even choose to disband the two.
That reduces their role to one of heavily supervised caretakers — with lower compensation than their predecessors to boot. Allison and Moffett were aware of this when they agreed to step in. But those who have convinced themselves that these two can instigate a reversal of fortunes should think again.