New CEO for Freddie Mac

Freddie Mac is preparing to name Donald Layton, the former chief executive of online brokerage E*Trade Financial Corp., as its next CEO, according to people familiar with the matter.

The company is expected to announce the hiring as soon as Thursday, these people said. That would end a six-month search for the mortgage giant's third chief executive in the four years since the government took control of it.

Layton had been considered the frontrunner for the job for more than a month. His appointment is subject to approval by the Federal Housing Finance Agency--which regulates Freddie and its sibling, Fannie Ma--and by the Treasury Department.

A person who spoke with Layton recently said he had decided to accept the post, which he considers "a public service." Layton, who will be 62 years old on Wednesday, declined to comment. Representatives for FHFA and Freddie Mac also declined to comment.

In Layton, Freddie and its regulator are selecting a financial-services veteran whom the government has turned to in the past andwho is willing to work for much less money than a typical chief executive.

Two years ago, the Treasury Department named Layton an outside director of American International Group Inc., the insurer that received a government bailout in 2008. On that board, he serves alongside Christopher Lynch, who became chairman of Freddie Mac in December.

Fannie also is searching for a new CEO and has narrowed its hunt to a finalist who met with the head of the FHFA, according to another individual familiar with the matter.

Both searches have been complicated by attacks on the companies, particularly their practice of paying private-sector wages to senior executives. The firms' regulator in March said it would offer about $500,000 per person in total annual compensation for the new chief executives, down from the current packages that are worth as much as $6 million.

It isn't clear whether Layton will remain an AIG director. The company requires board members to offer their resignation upon a change in professional responsibilities, but the insurer won't act immediately, said the person familiar with the matter.

Among the challenges that Layton will inherit at Freddie is turnover among executives and employees. The company also has four vacancies on its board. Freddie said this year in a federal filing that it was experiencing "disruptive levels of turnover" that could lead to "breakdowns" in internal operations. "It's pretty explicit for a company to say those kinds of things," Charles E. Haldeman Jr., the departing chief executive, said in an interview last week.

Last week, Anthony Renzi, who heads Freddie's single-family mortgage-guarantee business, said he would leave this month for a senior job with Citigroup Inc.'s mortgage unit.

AIG alumni have been considered in both searches. Gerry Pasciucco, who oversaw the winding down of AIG Financial Products, was a finalist for the Freddie job, according to a person familiar with the search. Paula Rosput Reynolds, who stepped down as AIG's chief restructuring officer in September 2009, was among candidates for the Fannie job but requested her name "be withdrawn from consideration," a different informed individual said. Reynolds was CEO of Safeco Corp.

Layton was chief executive of E*Trade for two years, stepping down at the end of 2009. He is a 29-year veteran of J.P. Morgan Chase & Co., from which he retired in 2004, following the merger with Bank One Corp. of Chicago.

He held a series of top jobs at J.P. Morgan and its predecessors, including head of the retail bank and co-head of the investment bank. He is chairman of the board of the Partnership for the Homeless, a New York-based nonprofit.

Haldeman, who announced his departure plans last fall, is well regarded by employees for his efforts to lift morale. He declined a $2 million bonus payment he was eligible to receive earlier this year.

But his emphasis on cost-cutting sometimes didn't sit well with senior managers, and some signature initiatives to reposition Freddie Mac didn't always receive the same level of interest from government regulators, according to people familiar with the matter.

This story first appeared on WSJ.com

Write to Nick Timiraos at nick.timiraos@wsj.com and Joann S. Lublin at joann.lublin@wsj.com