Veteran bankers to take reins at Fannie, Freddie

WASHINGTON (Reuters) - Two veteran bankers, one from Merrill Lynch and another from U.S. Bancorp, will be the new CEOs of mortgage titans Fannie Mae and Freddie Mac under a government takeover plan announced on Sunday.

Herb Allison, 65, a former president of Merrill who most recently led the TIAA-CREF pension fund, will take the corner office at Fannie Mae, the nation's largest housing finance group as it and Freddie Mac are placed under federal conservatorship.

David Moffett, 56, a former U.S. Bancorp executive who last year joined the politically powerful Carlyle Group private equity firm, will be CEO of Freddie, the smaller of the two deeply troubled, government-sponsored enterprises, or GSEs.

Both men are "highly capable ... the circumstances are enormously challenging even for talented people," said Eugene Ludwig, founder of consultancy Promontory Financial.

"They've got enormous issues to deal with. They have capital problems to address. They have funding issues that are serious. They have personnel issues," said Ludwig, who was U.S. comptroller of the currency in the Clinton administration.

In what may be the largest federal bailout ever, the U.S. government on Sunday took control of Fannie Mae and Freddie Mac, with the housing market in its deepest swoon since the Great Depression and global financial markets in turmoil.

Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron were both ousted to make way for Allison and Moffett, who were both generally praised by financial industry groups.

"Their ethics are above reproach. When you think of Allison and Moffett, the first thing that comes to mind is ethics," said Steve Bartlett, president of the Financial Services Roundtable, a financial industry lobbying group.

REPUBLICAN TIES

Both men have ties to the Republican Party. In 1999 and 2000, Allison was national finance chairman for the presidential primary campaign of Arizona Sen. John McCain, who is now running for president as the Republican candidate.

Moffett contributed to the unsuccessful 2004 Senate campaign of Republican beer baron Peter Coors, who is on U.S. Bancorp's board of directors, according to the Center for Responsive Politics, a campaign finance watchdog group.

In this year's election cycle, the employees and political action committees of Fannie and Freddie have contributed more money to the campaigns of Democrats than Republicans.

Under the plan unveiled on Sunday, the U.S. Treasury will immediately take a $1 billion equity stake in each company in the form of senior preferred stock and, if needed, could inject up to $100 billion into each firm.

Treasury also set up a program under which it would buy mortgage-backed securities (MBS) currently held by Fannie and Freddie to pump fresh funds into the mortgage market.

Fannie and Freddie own or guarantee nearly half of the nation's $12 trillion in outstanding home mortgage debt.

Since the housing slump got under way last year, private capital has fled some markets for MBS and the GSEs' role in financing American home purchases has grown ever larger.

Yet, the two firms in the last four quarters have lost a combined $14 billion, worrying holders of their outstanding debt, including some of the world's largest central banks. Both firms' share prices in recent months also are down sharply.

The most important task for the new CEOs will be to bring back "some faith in the management," said Walter Todd, principal at Greenwood Capital Associates, which owns Fannie and Freddie debt.

"The management team had been somewhat discredited by what had transpired," Todd said. "The two guys they are bringing in are pretty highly respected."

(Additonal reporting by Paritosh Bansal in New York)