Revised exit strategy

Knowing when and how to leave are two of life's great, underrated skills.
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They have also happened to be two of Dick Syron's professional strengths. He accomplished important goals and then left on top at a series of big jobs, running the Federal Reserve Bank of Boston, the American Stock Exchange, and Thermo Electron Corp. (now called Thermo Fisher Scientific Inc.) in Waltham. That didn't happen by accident.

He had a plan to leave his current job, chief executive of mortgage giant Freddie Mac, in the same fashion. This time, events have knocked Syron's last big corporate exit strategy way off the rails.

First, his hand-picked successor had a change of heart this year.

Gene McQuade, the former Fleet and Bank of America executive who had moved to Freddie Mac as Syron's number two, decided in May he didn't want the top job after all. Syron, who was prepared to step down early to make way for McQuade this year, instead ended up signing a one-year contract extension through 2009 last month.

More recently, the roof has fallen in on the mortgage business, as everyone knows. The industry's biggest player, Fannie Mae, has lost piles of money. Freddie Mac has lost even more.

Freddie Mac reported third-quarter losses of about $2 billion and expects to post a similar number for the fourth quarter.

It's stock has sunk like a rock, down 55 percent this year. Freddie has sold billions of dollars worth of preferred stock and cut the dividend to protect its capital.

So much for scripted exits. Now Syron talks about digging in and getting through a real estate cycle that will inflict more damage for years to come.

"I don't plan on exiting before it's fixed," Syron said yesterday. "I'll have to stay longer than I originally planned, but I'm confident in the organization. We're going through some tough times. It's a mix of accounting noise and reality, but both will get better."

Freddie Mac, like the bigger Fannie Mae, is a creation of Congress that exists to boost mortgage finance by purchasing loans from lenders. It makes investment income by holding mortgages and mortgage bonds. It also earns fees by packaging and guaranteeing home loans as securities. Together Fannie Mae and Freddie Mac own or guarantee about 40 percent of the $11.5 trillion US home loan market.

Syron came to Freddie Mac in 2004, drawn by an opportunity to fix a damaged institution. Serious accounting mistakes had eroded confidence, and regulators imposed much higher capital requirements as a result. Syron had an opportunity to fix Freddie Mac during a booming housing market.

Syron had good political skills and serious economic credentials. He had plenty of real-world experience with capital markets and publicly traded companies. It was a good fit and the story followed a fairly predictable plot until this year.

Now the market's problems are profound, and Syron, speaking at a Goldman Sachs conference this week, said Freddie Mac expected mortgage default rates of 3 percent or higher, the worst levels since 1991. His message: Don't expect good news anytime soon.

"I signed a contract to re-up through 2009," Syron told me yesterday. "I don't think we'll have finished the cycle by '09, but by that period people will see things getting a lot better."

That is the backdrop for Syron's new exit strategy, a plan that envisions him leaving a restored institution. "I don't intend to leave [Freddie Mac] in a bad place," he said. "This is the last thing I want to do on a full-time basis. I don't want to go out on something that isn't a success. I feel extremely strongly about that."

He has time, but there's a lot of digging out to do.

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source: boston.com