Mortgage Servicing Fraud
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U.S. Reps To Question Pay For Executives Tied To Mortgage Mess

Dow Jones


WASHINGTON -(Dow Jones)- The top executive of Countrywide Financial Corp. ( CFC) and the former CEOs of Merrill Lynch & Co. (MER) and Citigroup Inc. (C) have been asked to testify before a U.S. House panel about their severance packages and the role of their companies in the collapse of the mortgage market.

In separate letters sent Monday to Countrywide's Angelo Mozilo, E. Stanley O'Neal and Charles Prince, Rep. Henry Waxman requested the three testify Feb. 7 about their severance and compensation packages. Waxman, the chairman of the House Oversight and Government Reform Committee, said all three should be prepared to address reports about their pay packages.

"You should plan to address how it aligns with the interests of Countrywide's shareholders and whether this level of compensation is justified in light of your company's recent performance and its role in the national mortgage crisis," Waxman, D-Calif., said in the letter to Mozilo.

The request comes just days after Bank of America Corp. (BAC) agreed to bail out the troubled Countrywide by acquiring it for $4 billion in stock. Estimates suggest Mozilo could eventually receive upward of $70 million as part of his severance package.

That figure has sparked the ire of many in Congress. Last week, House Financial Services Chairman Barney Frank, D-Mass., called on Mozilo to donate a substantial portion of his salary from the last few years to non-profits and other groups involved in helping troubled homeowners.

Countrywide did not immediately return a request for comment on whether Mozilo planned to honor Waxman's request.

- By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

  (END) Dow Jones Newswires  01-14-08 1821ET  Copyright (c) 2008 Dow Jones & Company, Inc.
 http://money.cnn.com/news/newsfeeds/articles/djf500/200801141821DOWJONESDJONLINE000738
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OUCH! ;)

 Can't wait to see that...I bet c-span will be providing coverage.

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Guess I should put my order in for a transcript of this now and get it out of the way...

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That's to funny I was just going to suggest that...LOL

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Great post Smurf!  

The mega-pay and subsequent “Golden Parachute” relief packages
for the fraudster executives at the top do cause mind-bending
questions..  ..But they are legal. 

On the other hand the more subtle abuses like how these executives
seriously abuse their expenses and “business write-offs" of things
recklessly and illegally used by these same executives which were
of a personal nature is quite another issue.

                           These abuses are *illegal*

I seriously doubt these illicit activities will get by Congressman
Waxman’s Investigative Committee.

Submitted by Ed Cage  /  ecagetx@tx.rr.com  /  972-596-4363

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Bear Q & A

 

In addition, since by cutting the dividend you have knocked at least today $5 billion off the value of the stock, I’m wondering where does the shareholder show up in this whole calculation? He has lost 40% of his dividend. His stock price is down $5 billion in value. From what I think I heard you say, there is no prospect of the dividend going back up again. There is going to be share repurchases as opposed to replacing the dividend. So how does the stockholder benefit by this?

Gary Crittenden

Well let me talk first of all, Dick, about the way we thought about the dividend and just give you a little bit more color around that. If you took a normalized situation, so if you go back over the last few years and we have had a $20 billion earnings level and you assumed a 55% payout ratio or something like that. That gave you 45% of that capital essentially to allow the business to grow and to take care of any shocks that might happen in the system. Assuming that we ran the company right at the targeted ratios that we have, right at 6.5% in TCE and 7.5% in terms of our tier one ratio. That’s basically the assumption that you made.

That essentially -- even under that scenario -- gives you relatively little capital to rebuild your capital in the event of a shock scenario and obviously one of the things that I have to do as part of my job, think about all the time, is what’s the implication to the company of having a shock scenario happen? We have just experienced one of those. We have just been through that and we have obviously taken the charge associated with that in this quarter.

That kind of an event could happen at some point down the road. If it did happen at some point down the road, the proper way I think to manage this would be to do one of two things: either to hold significant additional excess capital, so even in the event of a shock you are able to recover relatively quickly; or alternatively, to reduce the payout ratio that would reflect what you believe the growth prospects of the business and the inherent exposures of the company to be. Those are the opposing trade-offs that we have as an organization.

Having thought through very carefully the amount of excess capital we would need to hold the return on capital implications associated with that and looked at the trade-off of that relative to the payout ratio, given the businesses that we are in and the inherent volatility we think exists in those businesses, we tried to make the right long-term decision. So this decision was not made for the next quarter or the quarter after that. It was a recommendation that we made looking forward over time, trying to consider the growth prospects of the company and as I say, the inherent exposures that the company has and with an eye towards trying to maximize the return on equity that we can provide back to our shareholders.

All of that taken together really reinforced the decision we made around the dividend. Now, there is no doubt that this is a short-term, difficult decision for us but we felt in the context of the uncertainty that exists in the environment as well as the growth opportunities that exist in front of us, that both the capital raise made a lot of sense for us as well as a dividend policy that positions us appropriately to rebound in the event of an exposure event down the road.

Richard Bove - Punk Ziegel

Final thought on that. I think I heard a number of times it said that the dividend was being sized relative to the growth prospects of the company. So if I assume a 40% payout ratio and a dividend of 28%, presumably the company is setting out a 320, if you will, ability to show earnings over some timeframe which would be substantially lower than let’s say the $1.25 inherent in the second quarter numbers. Is the company in fact saying that its earning capacity is substantially less and because its earning capacity is substantial less, shareholders should take a $5 billion one-day hit in their holdings and a 40% reduction in their dividends?

Gary Crittenden

Dick, obviously we don’t give forecasts for where we think the future is going to go. We also carefully did not talk about a payout ratio here. We didn’t think about it necessarily in terms of a specific payout ratio. We thought about it in terms of the capital formation and our ability to respond relatively quickly to a stress scenario in the environment.

Mathematically it calculates into a payout ratio, but that’s not the way we derived it.

Operator

Your final question comes from David Hilder - Bear Stearns.

David Hilder - Bear Stearns

Just one question on the timing of the headcount reduction. Have those actually taken place?

Gary Crittenden

They are in process right now, David.

David Hilder - Bear Stearns

So you should see some benefit in the first quarter expenses?

Gary Crittenden

The answer is yes.

David Hilder - Bear Stearns

Secondly, if you could provide any finer detail on what would qualify as non-core assets from divestiture or balance sheet reductions in the near term?

Gary Crittenden

I think the ones that we have most recently done give you an idea of that. So we had sold down a portion of our [Redi] card ownership which is a merchant servicing business that we had part ownership in Brazil. That’s one example of it. We sold the Simplex Investment Advisors which was a real estate investment advisory firm in Japan that we just sold our percentage of the ownership in.

Frankly, if you flip through the supplement you will probably come up with a list that is pretty close to the list that we have of those things that are not directly related to the kinds of things that we do that would be on our short-term list of actions that we would take to supplement the cash flow generation or the capital generation that we have just done.

Art Tildesley

Thanks, everyone for joining us today. We realize this has been a long call. Any other questions you have please give us a call at investor relations and we would be happy to help with those. Otherwise, operator, this concludes this call.

 

Citigroup Q4 2007 Earnings Call Transcript - Seeking Alpha

 

In addition, since by cutting the dividend you have knocked at least today $5 billion off the value of the stock, I’m wondering where does the shareholder show up in this whole calculation? He has lost 40% of his dividend. His stock price is down $5 billion in value. From what I think I heard you say, there is no prospect of the dividend going back up again. There is going to be share repurchases as opposed to replacing the dividend. So how does the stockholder benefit by this?

Gary Crittenden

Well let me talk first of all, Dick, about the way we thought about the dividend and just give you a little bit more color around that. If you took a normalized situation, so if you go back over the last few years and we have had a $20 billion earnings level and you assumed a 55% payout ratio or something like that. That gave you 45% of that capital essentially to allow the business to grow and to take care of any shocks that might happen in the system. Assuming that we ran the company right at the targeted ratios that we have, right at 6.5% in TCE and 7.5% in terms of our tier one ratio. That’s basically the assumption that you made.

That essentially -- even under that scenario -- gives you relatively little capital to rebuild your capital in the event of a shock scenario and obviously one of the things that I have to do as part of my job, think about all the time, is what’s the implication to the company of having a shock scenario happen? We have just experienced one of those. We have just been through that and we have obviously taken the charge associated with that in this quarter.

That kind of an event could happen at some point down the road. If it did happen at some point down the road, the proper way I think to manage this would be to do one of two things: either to hold significant additional excess capital, so even in the event of a shock you are able to recover relatively quickly; or alternatively, to reduce the payout ratio that would reflect what you believe the growth prospects of the business and the inherent exposures of the company to be. Those are the opposing trade-offs that we have as an organization.

Having thought through very carefully the amount of excess capital we would need to hold the return on capital implications associated with that and looked at the trade-off of that relative to the payout ratio, given the businesses that we are in and the inherent volatility we think exists in those businesses, we tried to make the right long-term decision. So this decision was not made for the next quarter or the quarter after that. It was a recommendation that we made looking forward over time, trying to consider the growth prospects of the company and as I say, the inherent exposures that the company has and with an eye towards trying to maximize the return on equity that we can provide back to our shareholders.

All of that taken together really reinforced the decision we made around the dividend. Now, there is no doubt that this is a short-term, difficult decision for us but we felt in the context of the uncertainty that exists in the environment as well as the growth opportunities that exist in front of us, that both the capital raise made a lot of sense for us as well as a dividend policy that positions us appropriately to rebound in the event of an exposure event down the road.

Richard Bove - Punk Ziegel

Final thought on that. I think I heard a number of times it said that the dividend was being sized relative to the growth prospects of the company. So if I assume a 40% payout ratio and a dividend of 28%, presumably the company is setting out a 320, if you will, ability to show earnings over some timeframe which would be substantially lower than let’s say the $1.25 inherent in the second quarter numbers. Is the company in fact saying that its earning capacity is substantially less and because its earning capacity is substantial less, shareholders should take a $5 billion one-day hit in their holdings and a 40% reduction in their dividends?

Gary Crittenden

Dick, obviously we don’t give forecasts for where we think the future is going to go. We also carefully did not talk about a payout ratio here. We didn’t think about it necessarily in terms of a specific payout ratio. We thought about it in terms of the capital formation and our ability to respond relatively quickly to a stress scenario in the environment.

Mathematically it calculates into a payout ratio, but that’s not the way we derived it.

Operator

Your final question comes from David Hilder - Bear Stearns.

David Hilder - Bear Stearns

Just one question on the timing of the headcount reduction. Have those actually taken place?

Gary Crittenden

They are in process right now, David.

David Hilder - Bear Stearns

So you should see some benefit in the first quarter expenses?

Gary Crittenden

The answer is yes.

David Hilder - Bear Stearns

Secondly, if you could provide any finer detail on what would qualify as non-core assets from divestiture or balance sheet reductions in the near term?

Gary Crittenden

I think the ones that we have most recently done give you an idea of that. So we had sold down a portion of our [Redi] card ownership which is a merchant servicing business that we had part ownership in Brazil. That’s one example of it. We sold the Simplex Investment Advisors which was a real estate investment advisory firm in Japan that we just sold our percentage of the ownership in.

Frankly, if you flip through the supplement you will probably come up with a list that is pretty close to the list that we have of those things that are not directly related to the kinds of things that we do that would be on our short-term list of actions that we would take to supplement the cash flow generation or the capital generation that we have just done.

Art Tildesley

Thanks, everyone for joining us today. We realize this has been a long call. Any other questions you have please give us a call at investor relations and we would be happy to help with those. Otherwise, operator, this concludes this call.

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Michael R. Crittenden wrote:                                                 

“Countrywide did not immediately return a request for comment on whether Mozilo planned to honor Waxman's request.”

 

 

Smurf to further explain why Crittenden reported the above dialogue which at first appears to be an arrogant rebuff by Countrywide, unless a subpoena is involved CW is not legally bound to honor Waxman’s request. However if one does choose to appear before a Federal investigating body or even answer a Federal Agent’s questions it is a *crime* if they don’t tell the truth even if they are not under oath.

 

Martha Stewart found that out the hard way.

Submitted by Ed Cage  /  ecagetx@tx.rr.com  /  972-596-4363

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To Smurf, I can't seem to get an email to you.

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