Krongard's `retirement' at PHH is no vacation


Taking on an accounting project and defending against shareholder lawsuits probably weren't what A.B. "Buzzy" Krongard anticipated when he re-entered the public spotlight last year from the shadows of the CIA.

But that's what he's gotten as chairman of PHH Corp., an ungainly chimera of a company that can't close the books on last year or the first quarter and doesn't know when it can. Combine that with an increasingly difficult mortgage market - PHH's biggest business - and you've got a challenge that belies the "retirement" that Krongard, 69, is supposed to be enjoying.

Maybe not as big a challenge as al-Qaida and the global war on terror, which was part of his portfolio as No. 3 boss at the CIA under George Tenet, but demanding enough.

PHH, which has a 1,000- employee, car-fleet management operation in Sparks, was unceremoniously spun off as an independent company from Cendant Corp. in February 2005. How unceremonious can be guessed from its current state, which suggests that Cendant didn't adequately prepare PHH for life on its own in the Sarbanes-Oxley era.

The books are a mess. Nobody knows how much money PHH is making, including PHH.

The company acknowledges "material weaknesses" in its financial reporting. The usual shareholder lawsuits associated with bookkeeping problems have cropped up.

In a telephone interview, Krongard, former boss of Alex. Brown Inc. and a director at Under Armour, expressed confidence in PHH and deflected suggestions that the best way out of its predicament is to split it again and make fleet management a separate company from the mortgage operation.

"We have a great board, and we're believers in the company, and we'll slog our way through it," he said.

Slogging through is not what some investors have in mind.

"A lot of people who own the stock want these things to be split apart," said Paul J. Miller, who follows the company for Friedman, Billings, Ramsey, an investment house in Arlington, Va.

That might realize greater value both for the fleet operation, which is unscathed but overshadowed by the mortgage issues, and for the mortgage unit, by merging it into something bigger and allowing capital to be deployed more efficiently, he said.

Split might happen

Miller suggests a split might happen as result of a merger or buyout. "My gut tells me this thing gets taken out at 32, 33 bucks," he said.

PHH closed yesterday at $26.22, below its high of more than $30 but above the spinoff price in the low 20s.

Krongard acknowledges that there are few reasons to put a mortgage-origination business and a corporate car-fleet management business under the same umbrella.

"You had two companies - mortgage and fleet - that basically didn't have anything to do with each other," he said.

But he played down the idea of breaking them up.

"It's a done deal," he said of the pairing in the Cendant spinoff.

PHH's problems seem to predate the spinoff and Krongard's simultaneous arrival as non-executive chairman.

"They got the boot from Cendant, and they didn't have time to develop the [accounting] systems," Miller said.

Cendant spokesman Elliot Bloom declined to comment, saying: "This matter is best responded to by PHH and its board of directors."

The fact that the stock is relatively undamaged by the accounting problems stems from investors' belief that its assets are solid and that the New Jersey-based mortgage company is making money, even if its precise amount can't be determined, Miller said. He doesn't own PHH shares and rates the stock an "outperform."

Also upbeat

The other analyst who covers PHH, Morgan Stanley's Kenneth A. Posner, assigns a similarly favorable rating: "overweight," even though the company's mortgage originations are slowing.

The accounting issues are about deferred taxes, intangible assets and a joint venture between Cendant and PHH, among other things, according to regulatory disclosures.

A new chief financial officer is preparing accurate statements. Krongard said he didn't have a date for their release, "and even if I had it I wouldn't tell you."

He says he's staying busier in retirement than he expected.

"When you have a job, you have a defined schedule," he said. "When you don't ... you overcommit yourself."

PHH is probably more of a commitment than he imagined.

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