By Emily Glazer, Rachel Louise Ensign and Nick Timiraos 

Fifth Third Bancorp, Ohio's largest bank, fired its general counsel last month because she was having a romantic relationship with the chief executive of Fannie Mae, Timothy Mayopoulos.

Fifth Third last month said Heather Russell, who was chief legal officer and corporate secretary for less than year, departed following "a personal matter" that represented "a conflict of interest."

Following inquiries from The Wall Street Journal, Ms. Russell said in a statement Wednesday that she "proactively informed Fifth Third's senior management about my personal relationship with Tim Mayopoulos, and they terminated me as a result of it. During my time at Fifth Third, I never had any interactions or dealings with Fannie Mae in any regard, and there was never any conflict of interest."

Fifth Third declined to comment beyond its initial statement, which also said that the conflict had "nothing to do with any of the legal work done by Heather during her tenure."

Ms. Russell, who is separated from her husband, previously went by the last name Russell Koenig.

Mr. Mayopoulos, who is separated from his wife, disclosed the relationship to Fannie Mae's compliance and ethics office in March, according to people familiar with the matter. The office at the mortgage giant said no further action was required so long as business decisions with Fifth Third didn't come before Mr. Mayopoulos, the people said. If a business conflict had surfaced, Mr. Mayopoulos would have then needed to seek additional guidance from the board.

A statement from a Fannie Mae spokesman Wednesday said Mr. Mayopoulos had disclosed his relationship to the company's compliance and ethics office. That office "provided appropriate direction to Mr. Mayopoulos, and he followed it," the company said. "Further, Mr. Mayopoulos has no involvement in Fannie Mae's relationship with Fifth Third Bank. Quite simply, there is no conflict of interest under Fannie Mae's corporate policies," the statement said.

The differing views of the relationship by Fifth Third and Fannie Mae raise questions of why it was considered to be a conflict by one firm and not the other.

As a mortgage lender, Fifth Third regularly does business with Fannie and Freddie Mac, selling them mortgages that are packaged into securities which receive government backing. Fannie and Freddie were placed into conservatorship by the U.S. government during the height of the financial crisis.

Of such mortgages sold by Fifth Third, 71.4% went to Freddie and 28.6% to Fannie in the first half of 2016, according to trade-publication Inside Mortgage Finance. Fannie's business with Fifth Third accounts for an extremely small fraction of its overall loan-guarantee volume.

As part of this process, Fifth Third also engages in negotiations with Fannie and Freddie over loans that go bad and demands that the bank repurchase these from the mortgage giants. The bank had $4 million in such unresolved claims outstanding at the end of the second quarter.

Ms. Russell was open about the relationship with colleagues and this summer told the bank's chief compliance officer about it, a person familiar with the matter said. About a week later, she was fired over the relationship, even though the bank didn't cite a more specific policy or procedure that she violated, this person said.

Mr. Mayopoulos went to Fannie's compliance office in March when he sought guidance on accepting gifts from counterparties.

This occurred after Ms. Russell invited him to attend the Kentucky Derby, people familiar with the matter said. While Fannie's policies would have allowed him to accept the gift, he didn't attend the race, these people said. Mr. Mayopoulos notified the board about his relationship with Ms. Russell last month when she was terminated from Fifth Third, people familiar with the situation said.

Mr. Mayopoulos, 57 years old, and Ms. Russell, 45, who are still in a relationship, worked together previously at Bank of America Corp., where Mr. Mayopoulos was general counsel between January 2004 and December 2008. Ms. Russell was an associate general counsel at the bank from June 2006 to June 2011.

Ms. Russell was the top lawyer at Fifth Third since late September 2015, following work at Bank of New York Mellon Corp. as chief regulatory counsel and head of public policy and regulatory affairs. Earlier, she worked at law firm Skadden, Arps, Slate, Meagher & Flom LLP.

Fifth Third's code of ethics says "we all must avoid actual or apparent conflict of interest with Fifth Third or its customers, suppliers and vendors."

Companies often have a right to fire employees if they violate policies or codes of conduct, said Gail Golman Holtzman, chairman of the labor and employment section of the American Bar Association and a principal at Jackson Lewis PC.

"This is a very sensitive and difficult issue, the topic of romance in the workplace," she added. "Personal relationships develop and yet employers have legitimate business interests to protect."

 

(END) Dow Jones Newswires

August 10, 2016 19:45 ET (23:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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