Fannie Mae replaces 3 top managers

Fannie Mae Chief Executive Officer Daniel Mudd replaced three top managers at the beleaguered mortgage-finance provider as the company struggles to convince investors it has enough capital to weather the housing slump.

Financial chief Stephen Swad, 47; Chief Business Officer Robert Levin, 52; and head of risk management Enrico Dallavecchia, 46, will all leave, Fannie Mae said Wednesday.

Fannie is seeking to restore confidence after its shares tumbled more than 85 percent this year and debt costs climbed. Concern that Fannie and the smaller Freddie Mac didn't have enough capital prompted U.S. Treasury Secretary Henry Paulson to draw up a rescue plan to inject unlimited amounts of money into the companies if needed.

"I think it's a good move," said Joshua Rosner, an analyst with independent research firm Graham Fisher. "I think it speaks to the intent to bolster confidence."

Shares of Fannie and Freddie rose Wednesday after successful debt sales and a Merrill Lynch analyst report helped stem speculation that the companies have an imminent need for a government bailout.

Fannie fell 3 cents to $6.45 in after-hours trading after gaining 86 cents, or 15 percent, to $6.48 in regular trading on the New York Stock Exchange. Freddie dropped 10 cents to $4.65 in after-hours trading after climbing 78 cents, or 20 percent, to $4.75.

"As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities," said Mudd. "We have to organize and staff accordingly."

Swad will leave and be replaced by David Hisey, 48. Levin will retire and Peter Niculescu, 48, will become responsible for overseeing Fannie's three divisions, single-family mortgage guarantees, capital markets and housing and community development, Fannie said. Dallavecchia's duties will be assumed by Michael Shaw, 61.

Fannie and Freddie, created by Congress to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their cost of borrowing and the yield on the debt. They also guarantee and package loans as securities, charging a fee.

Fannie and Freddie have reported $14.9 billion in combined net losses for the past four quarters as loan delinquencies rose. The slump heightened concern the companies needed more capital to overcome the losses.

Paulson stepped in last month, seeking to restore confidence. The shares continued their slump on concern the companies had few options available to raise money from private investors and worries that any rescue by the government would wipe out stockholders.

"The market will probably receive it well that Fannie's doing something, but the focus will inevitably shift back to the capital injection," said Ajay Rajadhyaksha, the head of fixed-income strategy at Barclays Capital. "Investors care most about whether there's clarity on a Treasury injection or not and under what terms that would happen. Until that happens, we remain in limbo."

Treasurer David Benson, 48, was promoted to executive vice president of capital markets and treasury with responsibility for the company's retained mortgage portfolio, liquidity and debt issuance.

Fannie sold $1 billion each of three-month and six-month notes Wednesday and Freddie raised $1 billion, offering buyers extra yields relative to benchmarks rates that while wider than before, remained lower than a year ago.

Investors had been watching the debt sales for any "telltale" signs that Fannie and Freddie can't fund themselves, UBS analysts including William O'Donnell wrote in a report.

"The real problem at Fannie Mae is that they didn't have enough capital going into this crisis; that's more the fault of our government than the executives," said Len Blum, managing director at investment bank Westwood Capital. "The capital is inadequate, changing management doesn't fix the problem."