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On Fannie, Freddie and WaMu…

Today’s my first day back from 10 days spent on a remote island off the coast of Maine and my inbox has been inundated with questions about Fannie (FNM), Freddie (FRE) and Washington Mutual (WM), all of which lost their CEOs, not to mention billions of dollars in shareholder equity. Everyone — even my mom, who normally only takes passing interest in this sort of thing — wants to know how much those executives will wind up with for — how do we put this charitably? — driving their companies into the ground? Of course, to be fair, the current mess wasn’t soley the fault of Mssrs. Mudd, Syron and Killinger and it will take a lot more than replacing them to fix things.

Based on this story from yesterday’s Times, the figures being talked about for Mudd and Syron are $9.3 million and $14.1 million respectively. But given the over-complicated nature of both executives’ employment contracts — a problem at Fannie that I first footnoted here over four years ago regarding Mudd’s predecessor, Franklin Raines — the numbers seem a bit more open to interpretation.

To start to try and figure it all out, you need to go back to Daniel Mudd’s lengthy agreement from November 2005. The good stuff starts around pg. 12 in a section called “compensation and benefits following termination of employment”. Make sure you’re not reading this before you grab some coffee. Richard Syron’s employment agreement is somewhat shorter, but equally complicated when it comes to determining exactly what clause under “termination of employment” fits the bill here. Just one example: will Syron get to keep the $4 million term life insurance policy that was part of the contract? Federal officials have already said they don’t plan to challenge the severance, whatever that number turns out being, according to this Reuters story from yesterday that quoted Federal Housing Finance Agency executive James Lockhart on last night’s Nightly Business Report.

As for WaMu, which we have poked at fairly consistently (see here and here to start), Killinger’s agreement was amended earlier this year, but otherwise hasn’t been updated since 1998 (go all the way down to exhibit 10.11), when the bank was still very much of the upward swing.

Perhaps the overly complicated employment agreement is the latest in a long-line of contra-indicators.