RANK
BARRON'S
August 18, 2008
TOP 100 Here are America’s best independent financial advisers, as identified by the securities-industry consulting firm Winner’s Circle of Boca Raton, Fla. The rankings reflect each adviser’s assets under management, the adviser’s share of revenue and profits generated, and quality of service. Assets managed for institutions are not counted toward the score. Because much of the data that Winner’s Circle gathers is confidential, such as advisers’ revenues, they cannot be shown here. But the table does indicate each adviser’s approach to the business, as well as the size of the firm (an adviser may be responsible for anywhere from 10% to 100% of a firm’s assets). Winner’s Circle, headed by industry researcher R.J. Shook, assigned the top adviser a score of 100 and rated the rest by comparing them with the winner. The letter N denotes new on list.
BLACK
Firm
Location
Institutional
$2,200
$3
Score
1.
John W. Rafal
Essex Financial Svcs
Essex, Conn.
§
§
§
2.
3.
Ron Carson
Carson Wealth Mgmt
Omaha, Neb.
§
§
§
2,055
2-5
6-12
99.61
3.
6.
John Waldron
Waldron Wealth Mgmt
Pittsburgh, Pa.
§
§
§
2,200
2-25+
10-100+
99.23
4.
4.
Mitchell D. Eichen
The MDE Group
Morristown, N.J.
§
§
§
1,585
9
12
98.89
5.
N
Paul Tramontano
Constellation Wealth
New York
§
§
§
4,000
25
40
98.62
6. 12.
Kevin Myeroff
NCA Financial Planners
Cleveland
§
§
§
1,300
1-5
3-10
98.38
7.
9.
Howard Sontag
Sontag Advisory
New York
§
§
§
§
4,200
8
10
98.04
8.
N
David Lees
myCIO Wealth Partners
Philadelphia
§
§
§
3,150
10-20
25
97.72
N
§
Typical Net-Worth ($mil)
1.
9.
§
Endowments
Typical Account ($mil)
§ § §
$3-50 100.00
D.K. Willardson*
First American Trust
Glendale, Calif.
§
§
§
1,752
1.4-10+
3-10+
97.48
10. 25.
Dale Yahnke
Dowling & Yahnke
San Diego
§
§
§
1,375
2.1
5.5
97.24
11.
N
Eric Koeplin
The Milestone Group
Denver
§
§
1,188
2-20+
5-50+
97.03
12.
N
Angelo Alleca
Summit Wealth Mgmt
Ocoee, Fla.
§
§
§
13. 24.
Nathan Bachrach
Financial Network
Cincinnati
§
§
§
14. 41.
Kevin Timmerman
Steele Capital Mgmt
Dubuque, Iowa
§
§
15.
Ted (Edward) Cronin
Manchester Capital Mgmt
Manchester, Vt.
16. 14.
Susan Kaplan
Kaplan Financial Svcs
Newton, Mass.
§
§
§
825
17.
5.
Tim Kochis*
Aspiriant
San Francisco
§
§
§
4,956
18.
N
850
5+
7-15+
95.50
633
2-10
4-15
95.31
1,349
1-3+
3-8+
95.13
880
3-10
20+
94.94
2,750
8-10
10-20
94.73
770
1.5-3.5
1.5-4
94.54
8.
§
§
§ §
Gerard Klingman
Raymond James Financial Svcs
New York
§
§
§
19. 21.
Ronald Weiner
RDM Financial
Westport, Conn.
§
§
§
20. 19.
Brian Holmes
Signature Estate & Inv
Los Angeles
§
§
§
21. 34.
Jeffrey Cohen
Siller and Cohen
Rye Brook, N.Y.
§
§
22. 75.
Steven Weinstein
Altair Advisers
Chicago
§
§
23. 11.
Malcolm A. Makin
Raymond James Financial Svcs
Westerly, R.I.
§
§
§
24. 36.
Milton Stern
Bridgewater Advisors
New York
§
§
§
25.
Jim Rogers*
First American Trust
Glendale, Calif.
§
§
§
26. 54.
Jeff Colin
Baker Street
San Francisco
§
§
27. 43.
Larry Carroll
Carroll Financial Associates
Charlotte, N.C.
§
§
28. 32.
Brent Brodeski
Savant Capital Mgmt
Rockford, Ill.
§
§
29. 28.
Peter Mallouk
Creative Planning
Leawood, Kansas
§
§
§
30. 15.
Alan Leist
Strategic Financial Svcs
Utica, N.Y.
§
§
§
§
31.
N
Clarke Lemons
CNL Bank Wealth Mgmt
Orlando
§
§
§
§
32.
N
Van M. Pearcy
Raymond James Financial Svcs
Midland, Texas
§
§
§
§
33. 18.
Robert Fragasso
Fragasso Financial
Pittsburgh
§
§
34. 29.
Aaron Izenstark
IRON Financial Companies
Northfield, Ill.
§
§
§
§
35.
N
Charles Brighton
Brighton Jones
San Francisco
§
§
36.
N
Thomas Gau
Retirement Planning Specialists
Ashland, Ore.
§
§
37
N
Jeff Lancaster*
Bingham, Osborn, & Scarborough
San Francisco
§
§
§
38.100.
Wally Obermeyer
Obermeyer Asset Mgmt Co
Aspen, Colo.
§
§
§
39.
2.
Ric Edelman
Edelman Financial Svcs
Fairfax, Va.
§
§
40. 10.
Leland Faust
CSI Capital Mgmt
San Francisco
§
§
41.
Chris Wheaton
Litman/Gregory Asset Mgmt
Larkspur, Calif.
§
§
42. 35.
Scott Tiras
Tiras, Pennington and Associates
Houston, Texas
§
§
43.
Lon Morton
Morton Capital Mgmt
Calabasas, Calif.
44. 68.
Dennis Gibb
Sweetwater Invs
Redmond, Wash.
45.
N
Randy Carver
Raymond James Financial Svcs
Mentor, Ohio
46.
N
N
N N
§ §
§
950
1-2
2-5
96.81
1,096
.550
.750-3
96.60
850
.750-3
2-7
96.40
1,550
20-50
20-50
96.20
3.5
10
96.00
15-25
20-30
95.69
800
3-10
5
94.37
1,752
1.4-10+
3-10+
94.13
4,000
25+
30+
93.87
The White House began to worry about Fannie’s and
§
718
.750-3+
1.5-10+
93.68
§
1,492
1-10+
1.25-20
93.50 93.33
Freddie’s solvency in February, when both agencies reported capital-shredding losses for the fourth quarter of 2007. Adding to the official concern was the deepening turmoil in the residential- mortgage market, and the need for the agencies to keep mortgage money flowing. The White House dispatched Treasury’s then-Undersecretary for Finance Bob Steel to cut a deal with both Fannie and Freddie. In return for the pair doing its best to raise $10 billion each in new equity, the administration would eliminate the cap on mortgage paper the agencies could put on their balance sheets, and lower the increased minimum regulatory capital requirements imposed on the GSEs after their previous accounting scandal. According to our source, both agency managements seemed amenable to the March deal, though they demurred on raising new capital immediately. They thought, and Treasury agreed, that any share flotation would have to wait until May, when first-quarter earnings were scheduled to be announced, providing investors with material information. Come May, Fannie kept its side of the bargain by raising $7.2 billion in mostly common equity. But Bush officials were shocked when Freddie failed to follow suit on an announced $5.5 billion equity raise. According to our source, Freddie’s Syron offered a vari-
§ §
§
§
744
1.1
2.85
§
1,100
2
5-10
93.15
§
847
3-10
5-20
92.99
§
725
1-3
2-10+
92.81
698
.450
1
92.64
§
1,125
1-2
3-10
92.46
1,650
5
6
92.30
§
§
§
§
702
1-2+
2-5
92.12
2,100
2-5+
5-10+
91.86
667
1-5+
2-10
91.70
.440 .800-1.5+
91.57
3,600 § §
§
1,100
2-5
3-10+
91.39
3,711
3-7+
5-10+
91.15
1,740
1-4
3-5
91.00
2
5
90.85
§
§
§
1,060
§
§
§
§
1,550
1
5
90.51
§
§
680
.500
1
90.35
Glenn Kautt
The Monitor Group
McLean, Va.
§
§
§
462
2-4
4-8
90.18
47. 74.
Meg Green
Meg Green & Associates
N.Miami Beach
§
§
§
855
3-5
5-10
90.03
48. 38.
Kim Ciccarelli Kantor Ciccarelli Advisory Svcs
Naples, Fla.
§
§
§
1,500
2-5
5-15+
89.89
25
When Trouble Won’t Wait Loans of recent vintage backed by Fannie Mae and Freddie Mac have defaulted at a much quicker pace than mortgages that were originated in 2000, which was another bad year.
CUMULATIVE DEFAULT RATE ON LOAN BOOK 1.25% 2000
Fannie Mae
1.00
2006
2005 0.75 0.50
2007 0.25 0.00 1Q
5Q
9Q
13Q
17Q
21Q
25Q
29Q
33Q
vency, and thus call into question the safety of their $5.2 trillion debt and guarantee obligations, despite the government’s implicit guarantee of that paper. The impact of a failed GSE debt auction would be global and catastrophic, since foreigners, including many Asian central banks, owned $1.5 trillion in Fannie and Freddie paper. After a frantic weekend meeting, Treasury Secretary Paulson announced on July 13 a rescue plan under which the Fed, and ultimately the Treasury, would backstop all Fannie and Freddie debt, and buy equity in the companies should that be necessary to bolster them. The omnibus housing bill passed and signed into law several weeks later codified all this in addition to establishing a new regulator for the GSEs with strong receivership powers. In the weeks since, Freddie has continued to put off raising capital, even though it finally completed its registration as a corporation with the SEC. Syron said when second-quarter earnings were released Aug. 6 that the company was waiting for a more “propitious” time. One might argue it came in May, when the stock was 25, not 6.
Number of Quarters Since Origination 1.25%
Freddie Mac
2000 1.00 0.75
2006 2005
0.50
2007
0.25 0.00
1Q
5Q
9Q
13Q
17Q
21Q
25Q
29Q
33Q
Number of Quarters Since Origination Source: Company reports
ety of excuses. He said neither he nor several senior board members wanted to dilute current shareholders since the stock had fallen from 67 in the summer of 2007 to around 25 in May. He also insisted Freddie could do nothing on the core capital front until it had completed its formal corporate registration with the SEC under the 1934 Act. That argument seemed fishy, since Freddie had raised $6 billion in preferred capital the previous November, and like Fannie has an exemption from registering stock issues with the SEC. A Freddie Mac spokesperson says the company was acting according to legal advice. Freddie succeeded in exploiting the Prague Spring of regulatory forbearance. Monthly statements show it bought even more mortgages, gunning the growth in its retained, on-balance-sheet portfolio by 11% in the second quarter. By reducing its hedging costs, it also doubled its vulnerability to loss from interest-rate moves. It appears Freddie was hoping a Hail Mary Pass with the portfolio would somehow reduce its spiraling operating losses. In retrospect, the agency meltdown seemed inevitable as the housing crisis deepened and credit losses mounted. On July 7 an analyst report claimed both agencies might have to raise substantially more capital because of a change in accounting regulations. Both stocks went into free fall, tumbling nearly 50% on the week. The Bush administration feared the stock collapse would signal that the companies were heading for insol-
Both GSEs continue to note their so-called core or regulatory capital levels remain comfortably above the minimum required by federal regulation. This ignores what would happen, however, if their balance sheets were marked to fair value—or if their fair-value estimates were hugely inflated, as indeed may be the case. Both balance sheets, for one, contain an entry called deferred tax assets that bulks up Fannie’s fair-value net worth by $36 billion and Freddie’s by $28 billion. These assets don’t represent real cash but tax credits the agencies have built up over the years that can be used to offset future profits. But, since the tax assets can’t be sold to a third party, or disappear in a receivership or sale of the company, they are disallowed in the capital computations of most financial institutions. Ironically, the worse a company does, the more capital cushion this asset creates. The companies also appear to have boosted their capital ratios by sharply curtailing their repurchase of soured mortgages out of the securitizations they’ve guaranteed. In the fourth quarter of last year, for instance, Freddie Mac took a loss of $736 million on loans repurchased. In this year’s first quarter that figure dropped to $51 million—a stunning decline in view of the continued deterioration of the housing and mortgage markets. Instead, the company made the interest payments to bring the mortgages current—a much smaller outlay, but a tactic that only pushes an inevitable loss forward into future quarters. In Fannie’s case, by postponing the buyback of bad loans the company avoided more than $1 billion in second-quarter charge-offs and a hit to its net worth. Other numbers also give pause. Less generous marks to Freddie’s $132 billion investment holdings in private-label subprime and Alt-A securities would lop another $20 billion off its net worth. And, more than likely, Fannie’s credit reserves of $8.9 billion won’t fully protect it from future losses on $36 billion of seriously delinquent mortgages on its $2.8 trillion book. After accounting for deferred tax assets and generous asset marks, Fannie and Freddie each may have a negative $50 billion in asset value, and little prospect of digging themselves out of the hole. Whether Fannie and Freddie are liquidated or nationalized as a prelude to privatization, in their current form they won’t be missed. n
P2BW231019-0-W02500-1-------
910478_910485
Name
Individuals (Up to $1mil)
Firm’s Assets ($mil)
tration is likely to mount its own recapitalization, with Treasury infusing taxpayer money into the enterprises, according to our source. The infusion would take the form of a preferred stock with such seniority, dividend preference and convertibility rights that Fannie’s and Freddie’s existing commonshares effectively would be wiped out, and their preferredshares left bereft of dividends. Then again, the administration might show minimal kindness to preferred shareholders; local and regional bankers have been lobbying the Bushies not to wipe out the preferred since the bankers own a lot of that paper and rely on the bank preferredstock market for much of their own equity capital. An equity injection by the government would be tantamount to a quasi-nationalization, without having to put the agencies’ liabilities on the nation’s balance sheet, and thus doubling the U.S. debt. Treasury would install new management and directors at both, curb the GSEs’ sometimes reckless investment and guarantee operations, and liquidate in an orderly fashion the GSEs’ troubled $1.6 billion in on-balance-sheet investments. Then the companies could be resold to the public without their explicit government debt guarantees, or folded into government agencies like Ginnie Mae or the FHA. Should the Bush administration lose its nerve and kick the GSE bailout forward to the next administration, a similar scenario still might unfold. In a column last month in the Financial Times, Lawrence Summers, Treasury Secretary in the Clinton administration and an important economic adviser to Democratic presidential candidate Barack Obama, opined that in view of the sad financial condition of Fannie and Freddie, both should be thrown into government receivership to protect the U.S. taxpayer. Republican presidential contender John McCain, for his part, fulminated in a recent op-ed in the Tampa Bay Times that if a dime of taxpayer money is used to bail out the companies, “the managements and the boards should immediately be replaced, multimillion-dollar salaries should be cut, and bonuses and other compensation should be eliminated.”
BARRON'S
EE,EU,MW,NL,SW,WE
P2BW231019-0-W02500-1--------XA
RANK ’08 ’07
CUSTOMERS High Ultra-High Net-Worth Net-Worth Found($1-10 mil) ($10+ mil) ations
August 18, 2008
P2BW231019-0-W02500-1--------XA BLACK 08/18/2008
32
P2BW231018-0-W02400-1------
August 18, 2008
The Treasury almost certainly will recapitalize flailing Fannie Mae and Freddie Mac in coming months, wiping out investors and showing management the door.
The Endgame Nears For Fannie and Freddie by Jonathan R. Laing IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS
EE,EU,MW,NL,SW,WE
Martin Kozlowski for Barron’s
The Bottom Line A quasi-nationalization of Fannie Mae and Freddie Mac could involve the issuance of new preferred stock. The companies’ assets may be worth negative $50 billion each.
In the current bailout the Bush administration is playing from strength. Not only have the GSEs’ stocks been decimated, but trading in their debt—whether the $1.6 trillion of corporate obligations or $3.6 trillion of mortgage-backed securities the two have guaranteed—would have been in disarray had the recent housing bill not made explicit the U.S. government’s backing of that debt. Even so, GSE debt spreads are starting to widen, relative to Treasury yields. An insider in the Bush administration tells Barron’s Fannie and Freddie are being jawboned by the Treasury Department and their new regulator, the Federal Housing Finance Agency (FHFA), to raise more equity. But government officials don’t expect the agencies to succeed. For one thing, only a “capital raise” of $10 billion or more apiece would have any credibility. Yet, what commonstock investors would advance that kind of money to entities that have market capitalizations of $8.5 billion (Fannie) and $4 billion (Freddie), especially as the FHFA will use its new powers to boost dramatically the regulatory capital the GSEs must have in coming years? Just as disconcerting for prospective shareholders, all but $300 million of the $7.2 billion in equity Fannie raised in the second quarter was lost in the very same quarter, according to its fair-value balance sheet. With credit losses surging at both agencies, $20 billion in new common equity wouldn’t last long. The cost of selling new preferred stock, meanwhile, would seem to be prohibitive for Fannie and Freddie. The dividend yields on their preferreds have soared to around 14%, in part because of a recent rating downgrade by Standard & Poor’s. Yields that high would blight the future earnings prospects of both concerns. Should the agencies fail to raise fresh capital, the adminis-
RANK ’08 ’07
BARRON'S
33 CUSTOMERS Ultra-High Net-Worth Found($10+ mil) ations
Individuals (Up to $1mil)
High Net-Worth ($1-10 mil)
Name
Firm
Location
49. 22.
Mark Smith
MJ Smith and Associates
Englewood, Colo.
§
§
50. 26.
Kay R. Shirley
Financial Development Corporation
Atlanta
§
§
51. 30.
Todd Feltz
Feltz WealthPLAN
Omaha, Neb.
52.
N
Gregory Thomas
ThomasPartners
Wellesley, Mass.
53.
N
Thomas Myers
Brownson, Rehmus & Foxworth
Menlo Park, Calif.
54. 53.
Trudy Haussmann
Haussmann Financial
Newport Beach, Calif.
55.
Bruce Brugler
Presidio Wealth Mgmt
San Francisco
56. 58.
John Lesser*
Plante Moran Financial
Auburn Hills, Mich.
57. 91.
Frank Martin
Martin Capital Mgmt
Elkhart, Ind.
N
§ §
§
§
Firm’s Assets ($mil)
Typical Account ($mil)
Typical Net-Worth ($mil)
Score
§
$535
$1.1
$1.5
89.74
750 .500-.800
3
89.60
§
§
§ § §
§
§
§
§
58.
N
Andy Berg
Homrich & Berg
Atlanta
§
§
§
N
Randy Garcia
Inv Counsel Co.
Las Vegas
§
§
§
60. 86.
Roland Manarin
Manarin Inv Counsel
Omaha, Neb.
§
§
61.
Stephan Cassaday
Cassaday & Co.
McLean, Va.
§
§
62. 27.
Kerrick Bubb
KWB Wealth Managers
Redlands, Calif.
§
63. 83.
John Bird
Albion Financial
Salt Lake City
64. 23.
Robert Levitt
Levitt Capital Mgmt
Boca Raton, Fla.
65.
Michael Gilbert
Gilbert Advanced Asset Mgmt
Johnson City, Tenn.
N
Institutional
§
59.
N
Endowments
§
§
§
§
§
§
1.4-5
89.46
950
.750-1+
1-3+
89.31
10,000
20-100
25-200+
89.12
760
.600
1-1.5
88.99
4,500
25-75
25-100
88.84
§
5,365
10
39
88.69
635
3+
3-5
88.56
§
1,650
5
7
88.42
§
605
1-3+
3-10+
88.29
521 .200-.300
§
§
.600-1.5
§
§
§
610
.200-2
88.12
1.2
1.4
87.98
515 .350-.400
1.2
87.85
640
2-5
2-7
87.71
431
3-5+
5-100+
87.57
400
.500-1
1.5-5
87.44
980
§
§
§
66.
N
Mike Fitzhugh*
Aspiriant
San Francisco
§
§
4,956
15-25
15-25
87.32
67
N
Gary Mikula
Birch Hill Inv
Boston
§
§
920
2-10+
3-25+
87.20
68. 56.
Joseph Jacques
Jacques Financial
Rockville, Md.
§
§
410
.500
1
87.08
69. 51.
Robert Glovsky
Mintz Levin Financial
Boston
§
§
§
1,150
4
4
86.93
70. 42.
Richard Brown
JNBA Financial
Bloomington, Minn.
§
§
278
.750-2
1.5-3
86.84
71.
Andrew McMorrow
Ballentine, Finn & Co.
Waltham, Mass.
§
4,700
20-200
25-200+
86.70
N
§
§
72. 93.
Lewis Altfest
L.J. Altfest & Co.
New York
§
§
73.
Chuck Bean
Heritage Financial Svcs
Norwood, Mass.
§
§
§
§
74. 82.
Richard Todd
Innovest Portfolio Solutions
Denver
§
§
§
75. 48.
Steve Booren
Capital Consulting
Greenwood Village, Colo. §
§
76. 44.
Bill Stevens
Stevens Foster Financial
Bloomington, Minn.
§
77. 77.
Craig Vander Molen LVM Capital Mgmt
Portage, Mich.
§
78.
N
N
543
1-9
3-11
86.57
500
1-10
2-20
86.46
3,800
25
50
86.26
§
450
.600
1.25
86.13
§
§
595
1
1.76
86.01
§
§
381
1-10
5-20
85.92
700
3
5-15+
85.80
386
1
3
85.68
861
.500-3
2-8
85.57
525
3-5+
3-10+
85.46
950
1+
2-10+
85.34
302
1-3
2-5
85.24
Erin Botsford
The Botsford Group/Biltmore Capital Frisco, Texas
§
§
§
79. 76.
Ronald Sadoff
Sadoff Inv Mgmt
Milwaukee
§
§
§
80. 81.
George PapadoyannisGeorge Papadoyannis
San Mateo, Calif.
§
§
81.
Cheryl Holland
Columbia, S.C.
§
§
N
Abacus Planning
Carrie Coghill Kuntz D.B. Root & Co. Wealth Mgmt
Pittsburgh
§
§
83. 63.
Jack Harmon
Atlanta
§
§
§
84.
N
Laila Marshall-Pence Pence Wealth Mgmt
Newport Beach, Calif.
§
§
§
85.
N
William Urban*
Bingham, Osborn & Scarborough
E. Palo Alto, Calif.
§
§
§
86.
N
Thomas Meyer
Meyer Capital
Marlton, N.J.
§
§
§
87. 67.
Frank Armstrong
Investor Solutions
Miami
§
§
88.
Christopher Housen Housen Financial
Manasquan, N.J.
§
§
89. 37.
Dan Goldie
Menlo Park, Calif.
§
90.
Michael J. Chasnoff Truepoint Capital
Cincinnati, Ohio
§
N N
Dan Goldie Financial Svcs
§
§
§
82. 78.
Harmon Financial
§
§
§
400
1.5-2.5
3-10
85.14
2,100
2-5
5-10
85.13
582
.900
3
85.03
477
1-4
2-5
84.92
§
365
1-3
5
84.81
§
§
450
1-10+
2-20+
84.71
§
§
770
3-5+
5-7+
84.61
91. 45.
Jim Blair
Moneta Group Inv
Clayton, Mo.
§
§
92. 88.
Mark Feldman
GenSpring Family Offices
Phoenix
§
§
93. 62.
Barbara Hudock
Hudock Moyer Wealth Mgmt
Williamsport, Pa.
§
§
94. 97.
Mark Winthrop
LPL Financial Svcs
Westborough, Mass.
§
95. 84.
Roy T. Diliberto
RTD Financial
Philadelphia
96. 31.
James Stack
Stack Financial Mgmt
Whitefish, Mont.
§
§
§
7,900
5-12.5
7-16
84.50
14,400
25
10-50
84.38
§
410
3-10
3-10
84.28
§
§
710
1-5
5-10+
84.18
§
§
§
407
1-5
1.5-7.5
84.08
§
§
§
361
.600-6
2-10
83.97 83.86
§
97. 61.
Roger Green
Green Financial Resources
Duluth, Ga.
§
§
344
.350
.500
98. 59.
Bob Palmer*
Plante Moran Financial
Southfield, Mich.
§
§
§
§
5,365
5
18.7
83.75
99.
T. Bartholomew
Bartholomew & Co.
Worcester, Mass.
§
§
§
§
625
1-3
4-8
83.65
Mark R. Brown
Brown & Tedstrom
Denver, Colo.
§
§
§
381
2-10
3-25
83.55
N
100. 79.
*Partners with an adviser shown nearby on ranking. Note: For more information on the Winner’s Circle and the ranking methodology, go to: www.WCorg.com Source: R.J. Shook
P2BW231018-0-W02400-1--------XA
Many of Fannie’s and Freddie’s credit losses come from risky mortgages that the agencies bought or guaranteed in recent years to boost their market share.
and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac. It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer’s dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies’ common stock, with preferred shareholders and even holders of the two entities’ $19 billion of subordinated debt also suffering losses. Barron’s first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, “Is Fannie Mae Toast?” Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year. Shares of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) have lost around 90% of their value in the past year, with Fannie now trading at $7.91, and Freddie at $5.88. Similarly, the balance sheets of both companies have been destroyed. On a fairvalue basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would have had a negative net worth of $5.6 billion as of June 30, while Fannie’s equity eroded to $12.5 billion from a fair value of $36 billion at the end of last year. That $12.5 billion isn’t much of a cushion for a $2.8 trillion book of owned or guaranteed mortgage assets. What’s more, the fair-value figures reported by the companies may overstate the value of their assets significantly. By some calculations each company is around $50 billion in the hole. But more on that later. Bringing Fannie and Freddie to heel will be difficult for the Bush administration, despite the GSEs’ (Government-Sponsored Enterprises’) parlous financial condition. Consider their history. In the early 1980s Fannie was effectively insolvent, but the government allowed it to continue operating. Eventually long-term interest rates dropped, bolstering the value of the company’s mortgages and bringing it back from the brink. Earlier in the current decade Fannie and Freddie successfully fought a fullscale attempt by the White House and some brave Republican legislators to clamp down on their operations, after they were caught perpetrating accounting frauds. Note, too, that Fannie and Freddie have nonpareil lobbying operations and formidable political strength, owing to their hefty donations and penchant for hiring former political operatives. Besides, the agencies claim they’ve
landed in their current predicament through no fault of their own. As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets. The latter contention is more than disingenuous. A substantial portion of Fannie’s and Freddie’s credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers’ income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers. In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.
August 18, 2008
BLACK
P2BW231018-0-W02400-1--------XA BLACK 08/18/2008
BARRON'S
910477_910486
24
August 18, 2008
TOP 100 Here are America’s best independent financial advisers, as identified by the securities-industry consulting firm Winner’s Circle of Boca Raton, Fla. The rankings reflect each adviser’s assets under management, the adviser’s share of revenue and profits generated, and quality of service. Assets managed for institutions are not counted toward the score. Because much of the data that Winner’s Circle gathers is confidential, such as advisers’ revenues, they cannot be shown here. But the table does indicate each adviser’s approach to the business, as well as the size of the firm (an adviser may be responsible for anywhere from 10% to 100% of a firm’s assets). Winner’s Circle, headed by industry researcher R.J. Shook, assigned the top adviser a score of 100 and rated the rest by comparing them with the winner. The letter N denotes new on list.
BLACK
Firm
Location
Institutional
$2,200
$3
Score
1.
John W. Rafal
Essex Financial Svcs
Essex, Conn.
§
§
§
2.
3.
Ron Carson
Carson Wealth Mgmt
Omaha, Neb.
§
§
§
2,055
2-5
6-12
99.61
3.
6.
John Waldron
Waldron Wealth Mgmt
Pittsburgh, Pa.
§
§
§
2,200
2-25+
10-100+
99.23
4.
4.
Mitchell D. Eichen
The MDE Group
Morristown, N.J.
§
§
§
1,585
9
12
98.89
5.
N
Paul Tramontano
Constellation Wealth
New York
§
§
§
4,000
25
40
98.62
6. 12.
Kevin Myeroff
NCA Financial Planners
Cleveland
§
§
§
1,300
1-5
3-10
98.38
7.
9.
Howard Sontag
Sontag Advisory
New York
§
§
§
§
4,200
8
10
98.04
8.
N
David Lees
myCIO Wealth Partners
Philadelphia
§
§
§
3,150
10-20
25
97.72
N
§
Typical Net-Worth ($mil)
1.
9.
§
Endowments
Typical Account ($mil)
§ § §
$3-50 100.00
D.K. Willardson*
First American Trust
Glendale, Calif.
§
§
§
1,752
1.4-10+
3-10+
97.48
10. 25.
Dale Yahnke
Dowling & Yahnke
San Diego
§
§
§
1,375
2.1
5.5
97.24
11.
N
Eric Koeplin
The Milestone Group
Denver
§
§
1,188
2-20+
5-50+
97.03
12.
N
Angelo Alleca
Summit Wealth Mgmt
Ocoee, Fla.
§
§
§
13. 24.
Nathan Bachrach
Financial Network
Cincinnati
§
§
§
14. 41.
Kevin Timmerman
Steele Capital Mgmt
Dubuque, Iowa
§
§
15.
Ted (Edward) Cronin
Manchester Capital Mgmt
Manchester, Vt.
16. 14.
Susan Kaplan
Kaplan Financial Svcs
Newton, Mass.
§
§
§
825
17.
5.
Tim Kochis*
Aspiriant
San Francisco
§
§
§
4,956
18.
N
850
5+
7-15+
95.50
633
2-10
4-15
95.31
1,349
1-3+
3-8+
95.13
880
3-10
20+
94.94
2,750
8-10
10-20
94.73
770
1.5-3.5
1.5-4
94.54
8.
§
§
§ §
Gerard Klingman
Raymond James Financial Svcs
New York
§
§
§
19. 21.
Ronald Weiner
RDM Financial
Westport, Conn.
§
§
§
20. 19.
Brian Holmes
Signature Estate & Inv
Los Angeles
§
§
§
21. 34.
Jeffrey Cohen
Siller and Cohen
Rye Brook, N.Y.
§
§
22. 75.
Steven Weinstein
Altair Advisers
Chicago
§
§
23. 11.
Malcolm A. Makin
Raymond James Financial Svcs
Westerly, R.I.
§
§
§
24. 36.
Milton Stern
Bridgewater Advisors
New York
§
§
§
25.
Jim Rogers*
First American Trust
Glendale, Calif.
§
§
§
26. 54.
Jeff Colin
Baker Street
San Francisco
§
§
27. 43.
Larry Carroll
Carroll Financial Associates
Charlotte, N.C.
§
§
28. 32.
Brent Brodeski
Savant Capital Mgmt
Rockford, Ill.
§
§
29. 28.
Peter Mallouk
Creative Planning
Leawood, Kansas
§
§
§
30. 15.
Alan Leist
Strategic Financial Svcs
Utica, N.Y.
§
§
§
§
31.
N
Clarke Lemons
CNL Bank Wealth Mgmt
Orlando
§
§
§
§
32.
N
Van M. Pearcy
Raymond James Financial Svcs
Midland, Texas
§
§
§
§
33. 18.
Robert Fragasso
Fragasso Financial
Pittsburgh
§
§
34. 29.
Aaron Izenstark
IRON Financial Companies
Northfield, Ill.
§
§
§
§
35.
N
Charles Brighton
Brighton Jones
San Francisco
§
§
36.
N
Thomas Gau
Retirement Planning Specialists
Ashland, Ore.
§
§
37
N
Jeff Lancaster*
Bingham, Osborn, & Scarborough
San Francisco
§
§
§
38.100.
Wally Obermeyer
Obermeyer Asset Mgmt Co
Aspen, Colo.
§
§
§
39.
2.
Ric Edelman
Edelman Financial Svcs
Fairfax, Va.
§
§
40. 10.
Leland Faust
CSI Capital Mgmt
San Francisco
§
§
41.
Chris Wheaton
Litman/Gregory Asset Mgmt
Larkspur, Calif.
§
§
42. 35.
Scott Tiras
Tiras, Pennington and Associates
Houston, Texas
§
§
43.
Lon Morton
Morton Capital Mgmt
Calabasas, Calif.
44. 68.
Dennis Gibb
Sweetwater Invs
Redmond, Wash.
45.
N
Randy Carver
Raymond James Financial Svcs
Mentor, Ohio
46.
N
N
N N
§ §
§
950
1-2
2-5
96.81
1,096
.550
.750-3
96.60
850
.750-3
2-7
96.40
1,550
20-50
20-50
96.20
3.5
10
96.00
15-25
20-30
95.69
800
3-10
5
94.37
1,752
1.4-10+
3-10+
94.13
4,000
25+
30+
93.87
The White House began to worry about Fannie’s and
§
718
.750-3+
1.5-10+
93.68
§
1,492
1-10+
1.25-20
93.50 93.33
Freddie’s solvency in February, when both agencies reported capital-shredding losses for the fourth quarter of 2007. Adding to the official concern was the deepening turmoil in the residential- mortgage market, and the need for the agencies to keep mortgage money flowing. The White House dispatched Treasury’s then-Undersecretary for Finance Bob Steel to cut a deal with both Fannie and Freddie. In return for the pair doing its best to raise $10 billion each in new equity, the administration would eliminate the cap on mortgage paper the agencies could put on their balance sheets, and lower the increased minimum regulatory capital requirements imposed on the GSEs after their previous accounting scandal. According to our source, both agency managements seemed amenable to the March deal, though they demurred on raising new capital immediately. They thought, and Treasury agreed, that any share flotation would have to wait until May, when first-quarter earnings were scheduled to be announced, providing investors with material information. Come May, Fannie kept its side of the bargain by raising $7.2 billion in mostly common equity. But Bush officials were shocked when Freddie failed to follow suit on an announced $5.5 billion equity raise. According to our source, Freddie’s Syron offered a vari-
§ §
§
§
744
1.1
2.85
§
1,100
2
5-10
93.15
§
847
3-10
5-20
92.99
§
725
1-3
2-10+
92.81
698
.450
1
92.64
§
1,125
1-2
3-10
92.46
1,650
5
6
92.30
§
§
§
§
702
1-2+
2-5
92.12
2,100
2-5+
5-10+
91.86
667
1-5+
2-10
91.70
.440 .800-1.5+
91.57
3,600 § §
§
1,100
2-5
3-10+
91.39
3,711
3-7+
5-10+
91.15
1,740
1-4
3-5
91.00
2
5
90.85
§
§
§
1,060
§
§
§
§
1,550
1
5
90.51
§
§
680
.500
1
90.35
Glenn Kautt
The Monitor Group
McLean, Va.
§
§
§
462
2-4
4-8
90.18
47. 74.
Meg Green
Meg Green & Associates
N.Miami Beach
§
§
§
855
3-5
5-10
90.03
48. 38.
Kim Ciccarelli Kantor Ciccarelli Advisory Svcs
Naples, Fla.
§
§
§
1,500
2-5
5-15+
89.89
25
When Trouble Won’t Wait Loans of recent vintage backed by Fannie Mae and Freddie Mac have defaulted at a much quicker pace than mortgages that were originated in 2000, which was another bad year.
CUMULATIVE DEFAULT RATE ON LOAN BOOK 1.25% 2000
Fannie Mae
1.00
2006
2005 0.75 0.50
2007 0.25 0.00 1Q
5Q
9Q
13Q
17Q
21Q
25Q
29Q
33Q
vency, and thus call into question the safety of their $5.2 trillion debt and guarantee obligations, despite the government’s implicit guarantee of that paper. The impact of a failed GSE debt auction would be global and catastrophic, since foreigners, including many Asian central banks, owned $1.5 trillion in Fannie and Freddie paper. After a frantic weekend meeting, Treasury Secretary Paulson announced on July 13 a rescue plan under which the Fed, and ultimately the Treasury, would backstop all Fannie and Freddie debt, and buy equity in the companies should that be necessary to bolster them. The omnibus housing bill passed and signed into law several weeks later codified all this in addition to establishing a new regulator for the GSEs with strong receivership powers. In the weeks since, Freddie has continued to put off raising capital, even though it finally completed its registration as a corporation with the SEC. Syron said when second-quarter earnings were released Aug. 6 that the company was waiting for a more “propitious” time. One might argue it came in May, when the stock was 25, not 6.
Number of Quarters Since Origination 1.25%
Freddie Mac
2000 1.00 0.75
2006 2005
0.50
2007
0.25 0.00
1Q
5Q
9Q
13Q
17Q
21Q
25Q
29Q
33Q
Number of Quarters Since Origination Source: Company reports
ety of excuses. He said neither he nor several senior board members wanted to dilute current shareholders since the stock had fallen from 67 in the summer of 2007 to around 25 in May. He also insisted Freddie could do nothing on the core capital front until it had completed its formal corporate registration with the SEC under the 1934 Act. That argument seemed fishy, since Freddie had raised $6 billion in preferred capital the previous November, and like Fannie has an exemption from registering stock issues with the SEC. A Freddie Mac spokesperson says the company was acting according to legal advice. Freddie succeeded in exploiting the Prague Spring of regulatory forbearance. Monthly statements show it bought even more mortgages, gunning the growth in its retained, on-balance-sheet portfolio by 11% in the second quarter. By reducing its hedging costs, it also doubled its vulnerability to loss from interest-rate moves. It appears Freddie was hoping a Hail Mary Pass with the portfolio would somehow reduce its spiraling operating losses. In retrospect, the agency meltdown seemed inevitable as the housing crisis deepened and credit losses mounted. On July 7 an analyst report claimed both agencies might have to raise substantially more capital because of a change in accounting regulations. Both stocks went into free fall, tumbling nearly 50% on the week. The Bush administration feared the stock collapse would signal that the companies were heading for insol-
Both GSEs continue to note their so-called core or regulatory capital levels remain comfortably above the minimum required by federal regulation. This ignores what would happen, however, if their balance sheets were marked to fair value—or if their fair-value estimates were hugely inflated, as indeed may be the case. Both balance sheets, for one, contain an entry called deferred tax assets that bulks up Fannie’s fair-value net worth by $36 billion and Freddie’s by $28 billion. These assets don’t represent real cash but tax credits the agencies have built up over the years that can be used to offset future profits. But, since the tax assets can’t be sold to a third party, or disappear in a receivership or sale of the company, they are disallowed in the capital computations of most financial institutions. Ironically, the worse a company does, the more capital cushion this asset creates. The companies also appear to have boosted their capital ratios by sharply curtailing their repurchase of soured mortgages out of the securitizations they’ve guaranteed. In the fourth quarter of last year, for instance, Freddie Mac took a loss of $736 million on loans repurchased. In this year’s first quarter that figure dropped to $51 million—a stunning decline in view of the continued deterioration of the housing and mortgage markets. Instead, the company made the interest payments to bring the mortgages current—a much smaller outlay, but a tactic that only pushes an inevitable loss forward into future quarters. In Fannie’s case, by postponing the buyback of bad loans the company avoided more than $1 billion in second-quarter charge-offs and a hit to its net worth. Other numbers also give pause. Less generous marks to Freddie’s $132 billion investment holdings in private-label subprime and Alt-A securities would lop another $20 billion off its net worth. And, more than likely, Fannie’s credit reserves of $8.9 billion won’t fully protect it from future losses on $36 billion of seriously delinquent mortgages on its $2.8 trillion book. After accounting for deferred tax assets and generous asset marks, Fannie and Freddie each may have a negative $50 billion in asset value, and little prospect of digging themselves out of the hole. Whether Fannie and Freddie are liquidated or nationalized as a prelude to privatization, in their current form they won’t be missed. n
P2BW231019-0-W02500-1-------
910478_910485
Name
Individuals (Up to $1mil)
Firm’s Assets ($mil)
tration is likely to mount its own recapitalization, with Treasury infusing taxpayer money into the enterprises, according to our source. The infusion would take the form of a preferred stock with such seniority, dividend preference and convertibility rights that Fannie’s and Freddie’s existing commonshares effectively would be wiped out, and their preferredshares left bereft of dividends. Then again, the administration might show minimal kindness to preferred shareholders; local and regional bankers have been lobbying the Bushies not to wipe out the preferred since the bankers own a lot of that paper and rely on the bank preferredstock market for much of their own equity capital. An equity injection by the government would be tantamount to a quasi-nationalization, without having to put the agencies’ liabilities on the nation’s balance sheet, and thus doubling the U.S. debt. Treasury would install new management and directors at both, curb the GSEs’ sometimes reckless investment and guarantee operations, and liquidate in an orderly fashion the GSEs’ troubled $1.6 billion in on-balance-sheet investments. Then the companies could be resold to the public without their explicit government debt guarantees, or folded into government agencies like Ginnie Mae or the FHA. Should the Bush administration lose its nerve and kick the GSE bailout forward to the next administration, a similar scenario still might unfold. In a column last month in the Financial Times, Lawrence Summers, Treasury Secretary in the Clinton administration and an important economic adviser to Democratic presidential candidate Barack Obama, opined that in view of the sad financial condition of Fannie and Freddie, both should be thrown into government receivership to protect the U.S. taxpayer. Republican presidential contender John McCain, for his part, fulminated in a recent op-ed in the Tampa Bay Times that if a dime of taxpayer money is used to bail out the companies, “the managements and the boards should immediately be replaced, multimillion-dollar salaries should be cut, and bonuses and other compensation should be eliminated.”
BARRON'S
EE,EU,MW,NL,SW,WE
P2BW231019-0-W02500-1--------XA
RANK ’08 ’07
CUSTOMERS High Ultra-High Net-Worth Net-Worth Found($1-10 mil) ($10+ mil) ations
August 18, 2008
P2BW231019-0-W02500-1--------XA BLACK 08/18/2008
32
P2BW231018-0-W02400-1------
August 18, 2008
The Treasury almost certainly will recapitalize flailing Fannie Mae and Freddie Mac in coming months, wiping out investors and showing management the door.
The Endgame Nears For Fannie and Freddie by Jonathan R. Laing IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS
EE,EU,MW,NL,SW,WE
Martin Kozlowski for Barron’s
The Bottom Line A quasi-nationalization of Fannie Mae and Freddie Mac could involve the issuance of new preferred stock. The companies’ assets may be worth negative $50 billion each.
In the current bailout the Bush administration is playing from strength. Not only have the GSEs’ stocks been decimated, but trading in their debt—whether the $1.6 trillion of corporate obligations or $3.6 trillion of mortgage-backed securities the two have guaranteed—would have been in disarray had the recent housing bill not made explicit the U.S. government’s backing of that debt. Even so, GSE debt spreads are starting to widen, relative to Treasury yields. An insider in the Bush administration tells Barron’s Fannie and Freddie are being jawboned by the Treasury Department and their new regulator, the Federal Housing Finance Agency (FHFA), to raise more equity. But government officials don’t expect the agencies to succeed. For one thing, only a “capital raise” of $10 billion or more apiece would have any credibility. Yet, what commonstock investors would advance that kind of money to entities that have market capitalizations of $8.5 billion (Fannie) and $4 billion (Freddie), especially as the FHFA will use its new powers to boost dramatically the regulatory capital the GSEs must have in coming years? Just as disconcerting for prospective shareholders, all but $300 million of the $7.2 billion in equity Fannie raised in the second quarter was lost in the very same quarter, according to its fair-value balance sheet. With credit losses surging at both agencies, $20 billion in new common equity wouldn’t last long. The cost of selling new preferred stock, meanwhile, would seem to be prohibitive for Fannie and Freddie. The dividend yields on their preferreds have soared to around 14%, in part because of a recent rating downgrade by Standard & Poor’s. Yields that high would blight the future earnings prospects of both concerns. Should the agencies fail to raise fresh capital, the adminis-
RANK ’08 ’07
BARRON'S
33 CUSTOMERS Ultra-High Net-Worth Found($10+ mil) ations
Individuals (Up to $1mil)
High Net-Worth ($1-10 mil)
Name
Firm
Location
49. 22.
Mark Smith
MJ Smith and Associates
Englewood, Colo.
§
§
50. 26.
Kay R. Shirley
Financial Development Corporation
Atlanta
§
§
51. 30.
Todd Feltz
Feltz WealthPLAN
Omaha, Neb.
52.
N
Gregory Thomas
ThomasPartners
Wellesley, Mass.
53.
N
Thomas Myers
Brownson, Rehmus & Foxworth
Menlo Park, Calif.
54. 53.
Trudy Haussmann
Haussmann Financial
Newport Beach, Calif.
55.
Bruce Brugler
Presidio Wealth Mgmt
San Francisco
56. 58.
John Lesser*
Plante Moran Financial
Auburn Hills, Mich.
57. 91.
Frank Martin
Martin Capital Mgmt
Elkhart, Ind.
N
§ §
§
§
Firm’s Assets ($mil)
Typical Account ($mil)
Typical Net-Worth ($mil)
Score
§
$535
$1.1
$1.5
89.74
750 .500-.800
3
89.60
§
§
§ § §
§
§
§
§
58.
N
Andy Berg
Homrich & Berg
Atlanta
§
§
§
N
Randy Garcia
Inv Counsel Co.
Las Vegas
§
§
§
60. 86.
Roland Manarin
Manarin Inv Counsel
Omaha, Neb.
§
§
61.
Stephan Cassaday
Cassaday & Co.
McLean, Va.
§
§
62. 27.
Kerrick Bubb
KWB Wealth Managers
Redlands, Calif.
§
63. 83.
John Bird
Albion Financial
Salt Lake City
64. 23.
Robert Levitt
Levitt Capital Mgmt
Boca Raton, Fla.
65.
Michael Gilbert
Gilbert Advanced Asset Mgmt
Johnson City, Tenn.
N
Institutional
§
59.
N
Endowments
§
§
§
§
§
§
1.4-5
89.46
950
.750-1+
1-3+
89.31
10,000
20-100
25-200+
89.12
760
.600
1-1.5
88.99
4,500
25-75
25-100
88.84
§
5,365
10
39
88.69
635
3+
3-5
88.56
§
1,650
5
7
88.42
§
605
1-3+
3-10+
88.29
521 .200-.300
§
§
.600-1.5
§
§
§
610
.200-2
88.12
1.2
1.4
87.98
515 .350-.400
1.2
87.85
640
2-5
2-7
87.71
431
3-5+
5-100+
87.57
400
.500-1
1.5-5
87.44
980
§
§
§
66.
N
Mike Fitzhugh*
Aspiriant
San Francisco
§
§
4,956
15-25
15-25
87.32
67
N
Gary Mikula
Birch Hill Inv
Boston
§
§
920
2-10+
3-25+
87.20
68. 56.
Joseph Jacques
Jacques Financial
Rockville, Md.
§
§
410
.500
1
87.08
69. 51.
Robert Glovsky
Mintz Levin Financial
Boston
§
§
§
1,150
4
4
86.93
70. 42.
Richard Brown
JNBA Financial
Bloomington, Minn.
§
§
278
.750-2
1.5-3
86.84
71.
Andrew McMorrow
Ballentine, Finn & Co.
Waltham, Mass.
§
4,700
20-200
25-200+
86.70
N
§
§
72. 93.
Lewis Altfest
L.J. Altfest & Co.
New York
§
§
73.
Chuck Bean
Heritage Financial Svcs
Norwood, Mass.
§
§
§
§
74. 82.
Richard Todd
Innovest Portfolio Solutions
Denver
§
§
§
75. 48.
Steve Booren
Capital Consulting
Greenwood Village, Colo. §
§
76. 44.
Bill Stevens
Stevens Foster Financial
Bloomington, Minn.
§
77. 77.
Craig Vander Molen LVM Capital Mgmt
Portage, Mich.
§
78.
N
N
543
1-9
3-11
86.57
500
1-10
2-20
86.46
3,800
25
50
86.26
§
450
.600
1.25
86.13
§
§
595
1
1.76
86.01
§
§
381
1-10
5-20
85.92
700
3
5-15+
85.80
386
1
3
85.68
861
.500-3
2-8
85.57
525
3-5+
3-10+
85.46
950
1+
2-10+
85.34
302
1-3
2-5
85.24
Erin Botsford
The Botsford Group/Biltmore Capital Frisco, Texas
§
§
§
79. 76.
Ronald Sadoff
Sadoff Inv Mgmt
Milwaukee
§
§
§
80. 81.
George PapadoyannisGeorge Papadoyannis
San Mateo, Calif.
§
§
81.
Cheryl Holland
Columbia, S.C.
§
§
N
Abacus Planning
Carrie Coghill Kuntz D.B. Root & Co. Wealth Mgmt
Pittsburgh
§
§
83. 63.
Jack Harmon
Atlanta
§
§
§
84.
N
Laila Marshall-Pence Pence Wealth Mgmt
Newport Beach, Calif.
§
§
§
85.
N
William Urban*
Bingham, Osborn & Scarborough
E. Palo Alto, Calif.
§
§
§
86.
N
Thomas Meyer
Meyer Capital
Marlton, N.J.
§
§
§
87. 67.
Frank Armstrong
Investor Solutions
Miami
§
§
88.
Christopher Housen Housen Financial
Manasquan, N.J.
§
§
89. 37.
Dan Goldie
Menlo Park, Calif.
§
90.
Michael J. Chasnoff Truepoint Capital
Cincinnati, Ohio
§
N N
Dan Goldie Financial Svcs
§
§
§
82. 78.
Harmon Financial
§
§
§
400
1.5-2.5
3-10
85.14
2,100
2-5
5-10
85.13
582
.900
3
85.03
477
1-4
2-5
84.92
§
365
1-3
5
84.81
§
§
450
1-10+
2-20+
84.71
§
§
770
3-5+
5-7+
84.61
91. 45.
Jim Blair
Moneta Group Inv
Clayton, Mo.
§
§
92. 88.
Mark Feldman
GenSpring Family Offices
Phoenix
§
§
93. 62.
Barbara Hudock
Hudock Moyer Wealth Mgmt
Williamsport, Pa.
§
§
94. 97.
Mark Winthrop
LPL Financial Svcs
Westborough, Mass.
§
95. 84.
Roy T. Diliberto
RTD Financial
Philadelphia
96. 31.
James Stack
Stack Financial Mgmt
Whitefish, Mont.
§
§
§
7,900
5-12.5
7-16
84.50
14,400
25
10-50
84.38
§
410
3-10
3-10
84.28
§
§
710
1-5
5-10+
84.18
§
§
§
407
1-5
1.5-7.5
84.08
§
§
§
361
.600-6
2-10
83.97 83.86
§
97. 61.
Roger Green
Green Financial Resources
Duluth, Ga.
§
§
344
.350
.500
98. 59.
Bob Palmer*
Plante Moran Financial
Southfield, Mich.
§
§
§
§
5,365
5
18.7
83.75
99.
T. Bartholomew
Bartholomew & Co.
Worcester, Mass.
§
§
§
§
625
1-3
4-8
83.65
Mark R. Brown
Brown & Tedstrom
Denver, Colo.
§
§
§
381
2-10
3-25
83.55
N
100. 79.
*Partners with an adviser shown nearby on ranking. Note: For more information on the Winner’s Circle and the ranking methodology, go to: www.WCorg.com Source: R.J. Shook
P2BW231018-0-W02400-1--------XA
Many of Fannie’s and Freddie’s credit losses come from risky mortgages that the agencies bought or guaranteed in recent years to boost their market share.
and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac. It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer’s dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies’ common stock, with preferred shareholders and even holders of the two entities’ $19 billion of subordinated debt also suffering losses. Barron’s first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, “Is Fannie Mae Toast?” Heaven knows, the two government-sponsored enterprises, or GSEs, both need resuscitation. Soaring mortgage delinquencies and foreclosures have led the companies to gush red ink for the past four quarters, and their managements concede the outlook is even grimmer well into next year. Shares of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) have lost around 90% of their value in the past year, with Fannie now trading at $7.91, and Freddie at $5.88. Similarly, the balance sheets of both companies have been destroyed. On a fairvalue basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would have had a negative net worth of $5.6 billion as of June 30, while Fannie’s equity eroded to $12.5 billion from a fair value of $36 billion at the end of last year. That $12.5 billion isn’t much of a cushion for a $2.8 trillion book of owned or guaranteed mortgage assets. What’s more, the fair-value figures reported by the companies may overstate the value of their assets significantly. By some calculations each company is around $50 billion in the hole. But more on that later. Bringing Fannie and Freddie to heel will be difficult for the Bush administration, despite the GSEs’ (Government-Sponsored Enterprises’) parlous financial condition. Consider their history. In the early 1980s Fannie was effectively insolvent, but the government allowed it to continue operating. Eventually long-term interest rates dropped, bolstering the value of the company’s mortgages and bringing it back from the brink. Earlier in the current decade Fannie and Freddie successfully fought a fullscale attempt by the White House and some brave Republican legislators to clamp down on their operations, after they were caught perpetrating accounting frauds. Note, too, that Fannie and Freddie have nonpareil lobbying operations and formidable political strength, owing to their hefty donations and penchant for hiring former political operatives. Besides, the agencies claim they’ve
landed in their current predicament through no fault of their own. As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets. The latter contention is more than disingenuous. A substantial portion of Fannie’s and Freddie’s credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers’ income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers. In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.
August 18, 2008
BLACK
P2BW231018-0-W02400-1--------XA BLACK 08/18/2008
BARRON'S
910477_910486
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