Fannie, Freddie & Countrywide officers among those to sign so far
By SAM GARCIA
8/15/2002

The recent Securities and Exchange Commission (SEC) order requiring the chief executive officers (CEO's) and chief financial officers of some publicly traded companies to certify their companies' financial statements has prompted at least one subprime lender to restate results. Several notable CEO's have complied thus far, but the statements are still forthcoming for a couple of noteworthy lenders.

Household International, Inc. announced it has filed restated form 10-Q financials with the SEC for the period ended March 31, 2002 and the year-ended December 31, 2001. The cumulative restatement relates to the period between 1994 and the second quarter of this year.

The Prospect Heights, Illinois company said its CEO, William F. Aldinger, has now provided the SEC certification.

"We have determined to adopt certain revisions to the accounting treatment of our Mastercard/Visa co- branding and affinity credit card relationships, and a credit card marketing agreement with a third party," said Aldinger. "We are restating earnings to reflect the cumulative impact of the adjusted items over the period in which the adjustments are applicable as determined in consultation with our new auditors at KPMG."

Aldinger added that the restatement has the effect of reducing second quarter earnings per share by about 1%, and EPS for the six months ended June 30, 2002 by 2.8%. "These changes are not expected to have any significant impact on our future results of operations."

Household, a constant target of anti-predatory groups, saw its shares fall as low as $32.90 yesterday before closing up $0.29 to $38.09. Shares of the company had traded as high as $68.45 a year ago today.

Last December, Barron's quoted William Ryan of the New York research boutique Ventana Capital as saying, "we believe Household, at a minimum, is set up for a dramatic decline in the quality of the company's earnings and, at most, a potential reduction in earnings estimates and/or a credit-related charge." Ryan reportedly said that he thinks Household's stock could be cut in half if his scenario comes to pass.

The stock was trading at around $60 per share at that time.

Household's CFO reportedly said of Ryan, "(he) acts like a reporter for the National Enquirer more than a security analyst."

Barron's went on to say that Household's $8.6 billion acquisition of rival Beneficial Corp. in 1998 prompted Household to adopt Beneficial's policy of recognizing losses on uncollected finance charges and other fees on private-label receivables and reversing them against offsetting revenues. Previously, like the loan's principal balance, they had been charged off against the loan-loss reserve, Barron's said.

Ryan reportedly translated Household's moves as, "we can lower our reported chargeoffs on private-label credit cards by reversing fees against revenues as opposed to having to report it through the credit loss line item." This apparently made reserve coverage ratios look better to investors.

Household's Aldinger said the restatements were the result of "a thorough review of our financial statements and related accounting policies in conjunction with our new auditors, KPMG LLP."

As of Wednesday, other mortgage-related executives reported to have provided signed SEC certifications are Angelo R. Mozilo of Countrywide Credit Industries, Inc.; Kenneth D. Lewis of Bank of America; Citigroup's Sanford I. Well; Jeffrey R. Immelt of General Electric Company -- parent of GECC; Herbert M. Sandler of World Savings' parent Golden West Financial Corporation; Thomas S. Johnson of GreenPoint Financial Corp.; J.P. Morgan Chase & Co.'s William B. Harrison, Jr.; Principal Financial Group Inc.'s J. Barry Griswell; Centex Corporation's Laurence E. Hirsch and Well's Fargo & Company's Richard M. Kovacevich.

Franklin D. Raines of Fannie Mae and Leland C. Brendsel of Freddie Mac -- both who were not on the SEC's list of companies -- voluntarily submitted the certifications.

Among companies whose executives' statements are still unconfirmed are Conseco, Inc., which recently announced it will miss a bond payment and seeks a capital restructuring, and PNC Financial Services Group, Inc., which recently settled issues related to questionable accounting practices with the SEC, the Federal Reserve Bank of Cleveland and the Office of the Comptroller of Currency.

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