Sunday, April 19, 2009

Fannie Mae CEO Allison Nominated to Run Treasury’s TARP Office

President Barack Obama nominated Fannie Mae Chief Executive Officer Herb Allison to run the Treasury office overseeing the $700 billion bank rescue.

Allison, 65, a former Merrill Lynch & Co. president, would replace Neel Kashkari, a holdover from the Bush administration, as assistant secretary for financial stability. If confirmed by the Senate, the choice gives Treasury Secretary Timothy Geithner the counsel of a Wall Street veteran as he confronts the biggest financial crisis since the Great Depression.

“Since taking over at Fannie Mae, Allison has shown that he can work in a glass house while a constant storm is raging outside,” said Stan Collender, managing director of Qorvis Communications in Washington and a former congressional aide. “That ability will serve him well as he steps in to administer TARP.”

Obama’s team, which announced the nomination yesterday, is reworking the Troubled Asset Relief Program after lawmakers complained that the Bush administration didn’t use the money as pledged to remove illiquid mortgage securities from banks’ balance sheets. Geithner has proposed a government partnership to spur private firms to buy, and banks to sell, the frozen assets.

“Designing the next leg of TARP proceeds to co-invest in legacy assets will require a deft touch and market knowledge to implement properly,” said Brian Olasov, a managing director at the McKenna Long & Aldridge law firm in Atlanta. “This fits Allison’s deep market experience well.”

Hostility in Congress

The bailout program is fraught with political risks for the administration and Allison, who must walk a fine line between helping the financial industry and assuaging congressional anger about rewarding the executives who helped cause the crisis.

In addition, some of the biggest, and healthier U.S. banks, are already pushing to give the government aid back. Goldman Sachs Group Inc. and JPMorgan Chase & Co. have both pledged this month to repay the TARP funds after posting profits that exceeded analysts’ expectations.

Allison’s appointment means there will be changes at both Fannie and its sister company Freddie Mac, which were seized by the government in September and are now playing key roles in Obama’s plans to revive the housing industry. Freddie Mac CEO David Moffett unexpectedly quit last month.

Michael Williams, Fannie’s chief operating officer, will likely become CEO, according to people familiar with the selection who declined to be identified because no decision has been announced. His appointment must be approved by the Treasury.

McCain Fundraiser

Allison, who served as national finance chairman on John McCain’s unsuccessful 2000 presidential campaign, headed the New York-based Teachers Insurance and Annuity Association - College Retirement Equity Fund for five years.

At TIAA-CREF, he created the firm’s wealth-management division and increased its total assets by 68 percent to $435 billion at the end of 2007 as the company stepped up marketing to investors beyond its base. He faced criticism from clients for bringing Wall Street practices, including job cuts and higher fees, to an institution that manages savings for teachers and academics.

A philosophy major at Yale University in New Haven, Connecticut, Allison spent 28 years at New York-based Merrill Lynch, rising from a junior employee to president and chief operating officer. He quit in 1999 after losing out on getting the top job to David Komansky.

Fannie Bonuses

Allison, who was tapped in September to head Fannie when it was seized by federal regulators, may face some tough questions in Congress on his defense of $112 million in retention bonuses awarded to Fannie employees last year.

Congress is pressuring the Obama administration to curtail executive bonuses to companies taking federal aid. Senator Charles Grassley, an Iowa Republican, the ranking Republican on the Senate Finance Committee, said on April 3 the bonuses are “an insult” and they ought to be returned.

Fannie and Freddie, which own or guarantee 56 percent of all residential home loans in the U.S., lost more than $108 billion last year and were placed into conservatorship in September.

Allison defended the bonuses in a March 20 e-mail to employees, saying that rescinding their retention agreements would be a “breach of faith” and would undermine the companies’ efforts to shore up the housing industry.

The Obama administration has directed Fannie and Freddie to help as many as 9 million people avoid foreclosure by modifying their loans and offering low-cost mortgage refinancing, waiving loan standards and taking other steps to help boost the housing market.

Allison decided to forgo all salary and bonuses and to reimburse the company for his car and driver in 2008, the company said.