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Who's to blame for the subprime mortgage crisis? Plus: Nasdaq's CFO moonlights as a minister.
Kate Plourd, CFO Magazine
October 1, 2007
Already, dozens of subprime-mortgage companies have either filed for bankruptcy or gone out of business altogether thanks to the faltering housing market. Not surprisingly, the ones that remain are quietly hoping the crisis passes soon — very soon.
In fact, when CFO tried to reach out to a host of finance chiefs at mortgage companies ranging from Delta Financial Corp. to ImPac Lending Group to Countrywide Financial Corp., the cries of "no" and "no comment" were deafening. But during recent earnings calls, when the companies had to talk, it became clear that they don't believe they are 100 percent to blame.
"You can't forecast as a lender which way values are going to be going, up or down," said Countrywide CEO Angelo Mozilo in a second-quarter earnings call. "So in our business, you're limited to what you believe the value to be, based upon a professional appraiser valuing a piece of property at that time."
Whatever the root cause, remaining lenders have had to scramble to survive. At Countrywide, which did receive a welcome boost to its credit lines in mid-September, huge job cuts — 12,000 — have been announced. Meanwhile, other lenders are rapidly downsizing their subprime exposure. In September, IndyMac Bancorp Inc. CEO Michael Perry told investors that the company managed risk by converting to a thrift charter and putting "100 percent of our assets, liabilities, and operations into the thrift, substantially reducing our liquidity risk."
Of course, every crisis spawns a contrarian. Despite setting aside more than $2 billion to cover loan losses, Washington Mutual Inc. CEO Kerry Killinger recently told a Lehman Brothers conference audience, "This, frankly, may be one of the best times I've ever seen for taking on new loans into our portfolio."
Tying the Knot
It's no secret that Nasdaq has had a tough time making a match. First, the London Stock Exchange spurned its multiple overtures to join forces to create a global exchange. Now, potential suitor Borse Dubai is trying to break up Nasdaq's announced merger with Stockholm's OMX exchange.
But David Warren, CFO of the New York–based stock exchange, has had more success forging other unions. Warren, an ordained minister, recently presided over a wedding ceremony for his family's longtime babysitter. First, of course, he obtained the appropriate license. "Obviously the compliance gene in me wanted to make sure it was legal," says Warren. Once satisfied in his due-diligence efforts, he worked with the bride and groom to craft a unique 45-minute ceremony. In his remarks, Warren drew on his own marriage, rather than business wisdom, for inspiration. (Warren and his wife recently celebrated their 20th anniversary.)
Warren adds that he could legally perform more marriages, but isn't likely to do so in the near future. "This was a very special thing, but I'm definitely not giving up my day job." Good thing, too, considering Nasdaq still faces the thorny tasks of consummating the deal with the OMX and getting rid of the 31 percent stake it accumulated in the LSE, a move it estimates could boost its earnings per share by up to 35 cents for 2008. — Alix Nyberg Stuart