REGULATORY

FANNIE MAE MUST RESTATE EARNINGS AFTER SEC FINDS VIOLATIONS

A review by the Securities and Exchange Commission found that Fannie Mae had violated accounting rules, and the mortgage giant has been told to restate its earnings. The SEC’s chief accountant, Donald Nicolaisen, said in a statement yesterday that the government-sponsored company’s accounting for 2001 through mid-2004 “did not comply in material respects” with accounting rules for derivatives, financial instruments used to hedge against interest-rate swings, and for some transactions related to loans. The SEC has been investigating the accounting of Fannie Mae, which finances one of every five home loans in America. Fannie Mae said last month that if the agency found that it had improperly accounted for derivatives, it would show an estimated net loss of $9 billion for the third quarter of this year. A Fannie Mae spokeswoman, Janice Daue, had no immediate comment yesterday evening after Mr. Nicolaisen’s statement was released.

Fannie Mae last month missed an SEC deadline for filing its third-quarter financial results after its independent auditor KPMG refused to sign off on the report. The company also acknowledged that some of its accounting practices don’t comply with generally accepted accounting principles. A restatement could lead Fannie Mae’s board to shuffle the company’s executive ranks.

– Associated Press

TIME WARNER SETTLES SECURITIES FRAUD CHARGES, PROPOSES SEC DEAL

Time Warner moved yesterday to resolve two federal investigations into its America Online unit, agreeing to pay $210 million to settle criminal securities fraud charges and disclosing it would pay $300 million to end an accounting probe.

The settlements will free the company to move forward on proposed acquisitions in 2005 – possibly including Adelphia Communications – and raise money for other deals by issuing new shares of stock. That had been prevented by the Securities and Exchange Commission while the investigations continued.

The $210 million agreement with the Justice Department, filed in federal court in Alexandria, Va., defers for two years prosecution of AOL or Time Warner on charges of aiding and abetting securities fraud stemming from a partnership deal with now-defunctPurchasePro.com. If the company cooperates in possible prosecutions of individual AOL executives and adheres to other parts of the deal, the charges will be dismissed.

On the SEC matter, Time Warner said SEC staff has agreed to recommend approval of its proposed settlement and $300 million payment. An SEC spokesman, John Nester, declined to comment.

– Associated Press

WALL STREET

LEHMAN 4TH-QUARTER NET RISES 22% ON INVESTMENT BANKING

Lehman Brothers Holdings, the fifth-largest American securities firm, said quarterly profit rose 22%, exceeding analysts’ estimates, and earnings in 2005 may be higher than this year’s record. Lehman sold more mergers advice and benefited from managing money for wealthy clients, helping net income surpass predictions for a 5% rise in the fourth quarter ended November 30. The New York-based firm’s chief administrative officer, David Goldfarb, said Lehman may beat expectations next year, when analysts had predicted an 8% decline.

Lehman’s results, the first from Wall Street, suggest that combined profits at the industry’s largest firms may exceed the 25% gain anticipated by analysts, said Wayne Bopp, who manages $35 billion at Fifth Third Bancorp. Lehman’s expansion into investment banking and money management is paying off at a company that still relies on bond trading for half its revenue, Mr. Bopp said.

– Bloomberg News

INTERNATIONAL

YUKOS SEEKS U.S. COURT PROTECTION TO FOIL UNIT SALE OAO

Yukos Oil Company, Russia’s second-largest oil producer, sought Chapter 11 bankruptcy protection in Houston and requested an emergency court hearing to stop the Russian government’s auction of its biggest unit.

In the filing, Yukos asked the court to prevent the auction of OAO Yuganskneftegaz, which pumps 60% of the company’s oil and is being sold in four days to help cover a $22 billion tax bill. The sale is the culmination of more than a year of demands from the Russian government that have wiped $30 billion from Yukos’s value and raised concern that more assets may be seized in Russia.

The court ruling “is going to be unprecedented because you have the U.S. bankruptcy courts trying to be used to impede the activities of the Russian state,” said a partner in insolvency law at Lovells in London, Christopher Grierson. – Bloomberg News

NATIONAL

BUSH PLEDGES STRONG-DOLLAR POLICY BY CUT TING BUDGET DEFICITS

President Bush pledged yesterday to work with Congress to reduce the government’s huge budget deficit as a key step in assuring the world that his administration supports a strong dollar.

“We’ll do everything we can in the upcoming legislative session to send a signal to the markets that we’ll deal with our deficit, which, hopefully, will cause people to want to buy dollars,” Mr. Bush told reporters.

Mr. Bush’s comments came following a meeting at the White House with Italian Prime Minister Silvio Berlusconi, who had raised the issue of the dollar’s plunge in value against the euro, the currency of Italy and 11 other E.U. nations.

“The policy of my government is a strong-dollar policy,” Mr. Bush said during a brief news conference following the Oval Office meeting, echoing statements he and Treasury Secretary John Snow have made numerous times during the last three years as the dollar’s value has fallen sharply against many major currencies.

Financial markets, which for the most part ignored the president’s comments, believe that the administration, while publicly supporting a strong dollar, secretly wants the greenback to fall further as a way of dealing with America’s record trade deficits.

– Associated Press