Fannie Mae said Tuesday that its chairman and chief executive officer, James A. Johnson, will step aside Jan. 1, and it named U.S. budget director Franklin D. Raines to succeed him.
The changing of the guard at the company that dominates the secondary market for mortgage loans, took financial markets by surprise and temporarily sent Fannie Mae's stock sharply lower in what some analysts described as a reaction to unexpected news. Shares closed at $61.875, up 12.5 cents.
"While it's a surprise that Johnson has announced this, it doesn't appear that there are a lot of questions about the direction of the company," said Patrick S. Flood, president, HomeBanc Mortgage Corp., Atlanta.
Mr. Johnson, 54, gave no reason for his decision to resign but was said to want to spend more time with his family. His tenure at Fannie Mae, which began in 1991, was marked by years of double digit growth in earnings per share and a surge in market capitalization to $65 billion from less than $8.5 billion.
"Jim Johnson has been just an outstanding leader and one of the truly great CEOs in this country," said Thomas P. Gerrity, dean of the Wharton School at the University of Pennsylvania and a member of Fannie Mae's board of directors.
Mr. Raines, whose resignation as director of the Office of Management and Budget was announced at a White House ceremony, will take over with numerous legislative battles on the agenda and some observers beginning to question Fannie Mae's ability to continue its rampant growth.
Mr. Johnson said the 49-year-old Mr. Raines' public sector experience and a background that included a five-year stint as Fannie Mae's technology chief, would serve him well.
"Frank has a magnificent reputation with both Republicans and Democrats," said Mr. Johnson. "I don't think there is anybody that could possibly be better positioned to represent the company in the public sphere."
"They're getting a Washington star of the first magnitude," said Thomas O'Donnell, analyst at Salomon Smith Barney. "It should be a smooth hand-off of the baton."
Mr. Raines agreed his political experience would be key at the government chartered company.
"I've learned a lot about how to deal with tough issues over the last couple of years," he said. "I think it will make me better able to make sure that the company's message is heard and understood by the key decision makers in Washington. Fannie is a regulated company and the CEO has to deal with that on a continuing basis."
Mr. Raines served as vice chairman of Fannie Mae from 1991 to 1996. He also worked as a general partner in municipal finance at Lazard Freres & Company in addition to holding other government positions in the OMB and the White House.
Mr. Johnson will remain as the chairman of Fannie Mae's executive committee through 1999.
The transition will begin on May 21 when Mr. Raines officially becomes chairman and chief executive officer-designate at the company's annual shareholder meeting.
"I think we've set the course very nicely for the decade of the '90s," Mr. Johnson said. "We have a company performing at an extraordinarily high level of professionalism and business success. I've always believed in having an orderly, reasonably lengthy transition."
Although the timing of the announcement was a surprise, it was widely known, some said, that Mr. Johnson planned to limit his term to about 10 years.
"Jim is a man who had a great amount of respect for planning and order," said Angelo Mozilo, chairman and chief executive officer of Countrywide Credit Industries, Calabasas, Calif. "He did it in an orderly way."
Mr. Johnson indicated to the board in early February that he intended to step down, Mr. Raines said. In late February, Mr. Johnson contacted Mr. Raines about taking over.
Mr. Raines said he looks forward to the transitional period "as a way to introduce new management and to insure continuity in the operations of the company.
"It's too early to do any diagnosis of the company," he added. "I'm going to have to take some time to analyze where they are and to see what I can contribute to the continuing success."