Fannie Mae settles charges, agrees to limit asset growth
New York: Fannie Mae, the US government-backed mortgage group, on Tuesday agreed to limit its portfolio growth, and pay $400mn to settle charges with two regulators relating to its $11bn accounting scandal. The $400mn payment settles charges made against the group by Ofheo and the Securities and Exchange Commission. Fannie Mae still faces a US Justice Department probe, and the SEC could still file charges against individuals.

As part of the settlement, Fannie agreed to limit the growth of its portfolio mortgage assets to December 31 2005 levels, or about $727bn. The cap can be lifted if Fannie shows improvement in its internal controls, risk management and accounting.

The sharply critical 348-page Ofheo report said that Franklin Raines, former Fannie Mae chief executive, and other top managers manipulated earnings in order to hit targets and generate lavish bonuses.

"The combination of earnings manipulation, mismanagement and unconstrained growth resulted in an estimated $10.6bn of losses, well over a billion dollars in expenses to fix the problems, and ill-gotten bonuses in the hundreds of millions of dollars," James B. Lockhart, Ofheo acting director, said.

The Ofheo report said earnings manipulation made a big contribution to Mr Raines's compensation, which the regulator said totalled more than $90m from 1998 to 2003. The report said more than $52m of that was tied to hitting earnings targets.

Fannie and Freddie are the largest bond market borrowers in the US after the federal government. The companies, created by the government to ensure widespread access to mortgages, are publicly traded.
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Euronext sees off hedge fund efforts to derail NYSE bid
Amsterdam: Euronext yesterday saw off a determined bid by American and British hedge funds to force it into an arranged marriage with Deutsche Börse rather than pursue a $10.2bn offer from the New York Stock Exchange.

Shareholders faced off at yesterday's annual meeting, and defeated by 43.9m votes (55%) to 30.6m a motion favouring an all-European merger from UK hedge fund Winchfield - based in the Dutch Antilles but probably a surrogate for TCI, the Frankfurt bourse's biggest shareholder and owner of 10% of Euronext's equity.

The vote allows Euronext to keep all of its options open, including a tie-up with exchanges other than the NYSE.

According to comments made by Euronext executives they had to see off a determined effort from hedge funds such as Atticus, a New York hedge fund, and TCI to force the exchange into a shotgun marriage with Frankfurt.

Executives have accused the hedge funds, known as "locusts" in Germany, of acting in cahoots with the Deutsche Börse management and of sending threatening letters to the management committee and supervisory board.

The outcome of the vote gives a free hand to Jean-François Théodore, Euronext's chief executive, and his team to negotiate improved offers from the NYSE, Deutsche Börse or others such as the Chicago Mercantile Exchange who are reportedly in the frame.
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