Fannie Mae 2008 Annual Report Download - page 59

governmental entities or others, and sustained declines in our long-term profitability could adversely affect our
credit ratings. The reduction in our credit ratings could increase our borrowing costs, limit our access to the
capital markets and trigger additional collateral requirements under our derivatives contracts and other
borrowing arrangements. It may also reduce our earnings and materially adversely affect our liquidity, our
ability to conduct our normal business operations, our financial condition and results of operations. Our credit
ratings and ratings outlook are included in “Part II—Item 7—MD&A—Liquidity and Capital Management—
Liquidity Management—Credit Ratings.”
We have experienced significant management changes and we may lose a significant number of valuable
employees, which could have a material adverse effect on our ability to do business and our results of
operations.
Since late August 2008, several of our senior executive officers have left the company or their positions,
including our former President and Chief Executive Officer, Executive Vice President and Chief Financial
Officer, General Counsel, Chief Business Officer, Chief Risk Officer and Chief Technology Officer. FHFA
appointed our new President and Chief Executive Officer at the commencement of the conservatorship, and we
hired a new Chief Financial Officer on November 24, 2008. There have also been several internal management
changes to fill key positions and the company continues to recruit members of its senior management team. It
may take time for the new management team to be hired or retained and to become sufficiently familiar with
our business and each other to effectively develop and implement our business strategies. This turnover in key
management positions could harm our financial performance and results of operations. Management attention
may be diverted from regular business concerns by reorganizations and the need to operate under this new
framework.
In addition, the success of our business strategy depends on the continuing service of our employees. The
conservatorship and the actions taken by Treasury and the conservator to date, or that may be taken by them
or other government agencies in the future, may have an adverse effect on the retention and recruitment of
employees and others in management. For example, pursuant to the senior preferred stock purchase agreement,
we may not enter into any new compensation arrangements or increase amounts or benefits payable under
existing compensation arrangements of any named executive officer (as defined by SEC rules) without the
consent of the Director of FHFA, in consultation with the Secretary of the Treasury. Limitations on executive
compensation may adversely affect our ability to recruit and retain well-qualified employees. If we lose a
significant number of employees and are not able to quickly recruit and train new employees, it could
negatively affect customer relationships and goodwill, and could have a material adverse effect on our ability
to do business and our results of operations.
We are subject to pending government investigations and civil litigation. If it is determined that we engaged
in wrongdoing, or if any material litigation is decided against us, we could be required to pay substantial
judgments, settlements or other penalties.
We are subject to investigations by the Department of Justice and the SEC, and are a party to a number of
lawsuits. We are unable at this time to estimate our potential liability in these matters, but may be required to
pay substantial judgments, settlements or other penalties and incur significant expenses in connection with
these investigations and lawsuits, which could have a material adverse effect on our business, results of
operations, financial condition, liquidity and net worth. In addition, responding to requests for information in
these investigations and lawsuits may divert significant internal resources away from managing our business.
More information regarding these investigations and lawsuits is included in “Item 3—Legal Proceedings” and
“Notes to Consolidated Financial Statements—Note 21, Commitments and Contingencies.”
The material weaknesses in our internal control over financial reporting could result in errors in our
reported results or disclosures that are not complete or accurate, which could have a material adverse effect
on our business and operations.
As described in “Part II—Item 9A—Controls and Procedures,” management has determined that, as of the
date of this filing, we have ineffective disclosure controls and procedures and two material weaknesses in our
internal control over financial reporting. These weaknesses could result in errors in our reported results or
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