The apparent suicide of David Kellermann, Freddie Mac’s acting chief financial officer, is the latest in a series of upheavals for the troubled US mortgage financier.
Mr Kellermann, who was named acting CFO six months ago when Freddie Mac and rival Fannie Mae were taken over by their regulator, was the company’s fourth chief financial officer in less than six years. His death comes at a time when Freddie is without a permanent chief executive, its board members have had only six months on the job and the prospects of breaking free of government control look increasingly slim.
Freddie Mac said last month that a $23.9bn (£16.5bn, €18.4bn) fourth-quarter loss would require it to draw down $30.8bn of capital from the US Treasury, but warned that it would face difficulties paying the government back.
The latest capital infusion brought the government’s stake in Freddie Mac to $45.6bn of senior preferred stock, which pays a dividend of 10 per cent a year. Freddie said its ability to pay the government was limited, noting that it would owe $4.6bn in dividends annually – more than it has earned in most previous years.
Freddie said it was also likely to record “significant losses” in coming years, which would lead it to require extra funds from the Treasury, pushing it further into the government’s embrace. Since they were put under government supervision, Fannie and Freddie have become central to federal efforts to ease the housing crisis, creating further demands on their balance sheets.
David Moffett, Freddie’s chief executive, resigned after just six months because of the frustrations of operating under government restrictions. The company named John Koskinen, its chairman, as interim chief executive and is still seeking a permanent replacement.
Finding a successor for the job will be difficult. The chief executive will have little control over the long-term strategy for the company while the salary is likely to be skimpy compared with other chief executive positions.
A large salary package would come under scrutiny from the public and from Congress, raising questions over how taxpayer money is being spent. Fannie and Freddie are already under pressure over their plan to pay about $210m in retention bonuses to 7,600 employees over 18 months.
The companies must seek approval from their regulator, the Federal Housing Finance Authority, for all significant decisions, including hiring, firing and payment of senior employees.
The chief executive will also have the pressure of investigations into accounting standards by both the Securities and Exchange Commission and the US attorney’s office for the eastern district of Virginia.
Freddie Mac’s six months under government supervision are just the latest chapter in a long saga of accounting troubles and management changes. In 2002, Freddie was the focus of a serious accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a senior federal regulator.
The scandal resulted in a 2003 regulatory consent order for Freddie that required the company to comply with 28 internal and board level tasks designed to right operations that had gone off course under past executives.
When Freddie was taken into conservatorship in September 2008, it had still not complied with all these requirements. One remaining task required Freddie to separate the positions of chairman and chief executive. This had been called for “within a reasonable period of time”, but five years after the consent order was issued Richard Syron, the then chief executive, remained both chairman and CEO.
Mr Kellermann’s death has added a domestic tragedy to Freddie’s long running corporate misfortunes. But it will also hinder government efforts to manage the company’s increasingly tangled balance sheet for the good of the housing market.