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 21:45 ET (01:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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