With Wall Street anticipating the worst day in years following the bankruptcy of Lehman Brothers, the sale of the legendary Merrill Lynch, and the tenuous position of major insurer AIG, at least there was a little bit of good news for the consumer.
The public and specifically the two companies' shareholders who have little hope of recouping any of their investment, were not happy when it was revealed last week that Daniel Mudd, former CEO and Richard Syron who had been removed from the same position with the seizure of Freddie Mac, would receive severance packages estimated at $6 to $8 million for Mudd, and Syron, through a clause added to his contract in July when a possible federal takeover was first discussed, might have received as much as $15 million.
News of the potential settlements provoked stinging editorials, cartoons, and expressions of outrage on the blogs and in newspapers' letters to the editor spaces from those who felt that the two executives were largely responsible for the corporate meltdowns.
On Sunday the conservator appointed to administer the affairs of Freddie Mac and Fannie Mae issued a one paragraph press release summarizing the FHFA's decision that "'golden parachute' payments contemplated under (the executive's) contracts would not be paid. The Agency, serving as conservator, determined that under applicable statute and regulation, the Enterprises should not make such payments to these individuals and directed the Enterprises accordingly."
The announcement follows an "interim final regulation" issued on Friday for publication in the Federal Register which invites comments on the FHFA's ruling. It states that no regulated entity can make or agree to make any golden parachute or indemnification payments without the agreement of the director who will take into consideration whether there is reason to believe that the recipient has committed any fraudulent act or omission, breach of trust or fiduciary duty or insider abuse that has impacted the regulated entity or if there is reason to believe that the recipient is substantially responsible for the insolvency of the entity, the establishment of the conservatorship and whether the proposed payment reasonable reflects the compensation earned over the period of employment or represents a reasonable payment for services rendered.
The compensation package that was expected by the two executives included pension money as well as severance pay and it is unclear whether the conservator can interfere with the pensions.
In an article in The Wall Street Journal James R. Hagerty speculated that the two had already lost much of their wealth through the collapse in Freddie and Fannie's stock prices. The value of Mudd's Fannie Mae stock is now worth $683,000 (and may realistically be without any value) compared to $23.7 million before the mortgage crisis.
According to The Journal, Syron and Mudd couldn't be reached immediately for comment on the FHFA's ruling.