Banking's Ins and Outs: $188 Billion from Bailout, $1.6 Billion to Execs

The 116 banks that are receiving billions in taxpayer-provided bailout money this year actually paid out $1.6 billion in compensation and benefits to their top executives last year – even though the results at some of these institutions were so poor that they would soon have to turn to Washington for a government-engineered rescue.

The $1.6 billion was paid out to nearly 600 executives at the 116 banks that have so far accepted federal money to bolster their financial foundations, The Associated Press concluded after a review of U.S. securities filings. In addition to salary, the compensation included bonuses paid in both cash and stock. The benefits reaped by top executives included the use of company jets for personal purposes, personal chauffeurs, home-security services, country-club memberships and professional-wealth-management services, the news service said.

U.S. Rep. Barney Frank, D-Mass., a longtime critic of the fat pay packages given to U.S. executives, said the bonuses and perks tallied by The AP review amounted to a bribe paid “to get [CEOs] to do the jobs for which they are well paid in the first place.”

“Most of us sign on to do jobs and we do them best we can," Frank, chairman of the House Financial Services committee, told the news service. But "we’re told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"

The AP review is just the latest in a series of media investigations that have questioned the effectiveness of – and banks’ commitment to – the so-called “Troubled Assets Relief Program” (TARP), part of an overall $700 billion bailout plan that was originally unveiled in late September.

The plan was originally conceived to boost the strength of U.S. financial institutions by having the federal government purchase non-performing mortgages and other bad assets. In November, the Bush administration changed TARP’s objectives, instructing the U.S. Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.

Ideally, TARP was supposed to jump-start bank-to-bank and bank-to-consumer lending, helping to unfreeze a credit crisis that may be the worst the U.S. economy has experienced since the Great Depression. But that hasn’t happened. Instead, as a Money Morning investigation has shown, banks are using the money to buy other banks in a dual effort to build market share for when the economy recovers, and to perhaps make themselves “too big to fail” in the interim, many experts say.

TARP did set restrictions on some executive compensation for participating banks, but it did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from presenting so-called “golden parachute” financial packages to departing or ousted executives and from deducting some executive pay for tax purposes.

The AP study found that the 116 banks received $188 billion in TARP money. The study also discovered that:

• The average amount paid to each of the 116 banks’ top executives was $2.6 million in salary, bonuses and benefits.

• Lloyd C. Blankfein, president and chief executive officer of Goldman Sachs Group Inc. (GS), took home nearly $54 million in compensation in 2007. The company’s top five executives received a total of $242 million. On Oct. 28, Goldman received $10 billion in federal bailout money. On Dec. 16, Goldman reported a $2.12 billion quarterly loss, its first since it went public back in 1999. So for 2008, Goldman’s seven top-paid execs will work for their base salaries of $600,000 each, but will forgo any cash and stock bonuses, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan in a written report back in the spring as being essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday would not elaborate beyond that written report.

• Even where banks slashed pay, some executives still reaped a payday of seven – or even eight – figures. Richard D. Fairbank, the chairman of Capital One Financial Corp. (COF), which received $3.56 billion in bailout money back on Nov. 14, took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options.

• Merrill Lynch & Co. (MER) CEO John A. Thain topped all banking chieftains with more than $83 million in total earnings in 2007. Thain, a former chief operating officer for Goldman Sachs, took over the top job at Merrill in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he landed a $15 million signing bonus, $57,692 in salary, and an additional $68 million in stock options. Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28. Merrill shareholders have approved its sale to Bank of America Corp. (BAC), though the value of the deal has plunged to $20 billion (from $50 billion at the time the deal was announced) as a result of the stock market decline. BofA will reportedly slash 35,000 jobs as a result of the combination.

• JPMorgan Chase & Co. (JPM) CEO James Dimon ran up a $211,182 private jet travel tab last year, because his family lived in Chicago and he was commuting to New York. JP Morgan received $25 billion in bailout funds.

• Bank of New York Mellon Corp. (BK) CEO Robert P. Kelly received $66,748 for financial services – on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said. At Goldman, the bill for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important because it grants executives more time to focus on their jobs.

• Wells Fargo & Co. (WFC), which received $25 billion in bailout cash, gave its top executives as much as $20,000 each for personal financial planners.

When asked to justify the personal use of company aircraft for some executives, banks cite security as a key reason. But U.S. Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation’s security-conscious commercial air terminals.

U.S. Rep. Brad Sherman, D-Calif., a member of the House Financial Services Committee, said excessive pay and perks undermines the development of good economic policies at banks and fuels an already problematic pay spiral in the U.S. financial sector. And that’s especially difficult for shareholders and taxpayers to accept when virtually the entire sector needs bailing out [check out this related story on the growing U.S. CEO pay controversy].

Sherman told The AP that he wants the banks to appear before Congress, like the automakers did, and spell out their spending plans for the bailout money.

Said Sherman: "The tougher we are on the executives that come to Washington, the fewer will come for a bailout.”

Original post

Comments

[Steven Hansen:]

why don't we solve the problem simply. if public money is invested in any institution, the company should be required to pay government scale (which bonuses are not paid).

2008 Dec 23 06:05 AM

[Stever530:]

Have you seen the bond market lately? I'll tell you where the TARP funds went. It went into T-bills. You can give the banks money, but you can't make them lend it out.

2008 Dec 23 09:00 AM

[WolfLives:]

The Greatest Patriotism of All – Simply Believing – There is Justice for All!

2008 Dec 23 01:14 PM

[tlc:]

To be fair, Goldman, JP Morgan and maybe few others did not ask for bail out money. They were forced to take the money so those who did would be stigmatized.

2008 Dec 23 01:39 PM

[WolfLives:]

Resin – What if – The smoke stacks of coal plants – was pulled through - a bong like filter - filled with resin? And the waste was mixed in resin?
Even the nuclear waste mixed with resin? – Allowed to dry – and then sealed and – safely stored – little worry about – the causes of any spills.

2008 Dec 23 04:38 PM

[HBWOW:]

What is new? The insider executives and directors (watchdogs for stockholders???) have been bilking the stockholders for years totally irrespective of reasoning, job performance, corporate performance - simply lets grab whatever we can get away with. These monies are void of "arm's length transaction bases", prior COMPLETE disclosure to stockholder much less their approval, and depletion of corporate equity. I believe these transaction to be of the highest form of (dirty) white collar crime. How can any shareholder have ANY faith in the company's management with these type of dealings?

2008 Dec 23 05:34 PM

[M-P:]

I believe in capitalism and the implied pay for performance contract, but I have trouble with the bank execs receiving this kind of $ when they are being subsidized by the taxpayer because they took undue risk. Why don't we look at a clawback provision whereby we take back $ that was ill-gotten via reckless leverage and risk. Unfortunately, the seeds of failure were planted a number of years ago and we are now cleaning up the mess. Why do we reward malfeasance? Why do we subsidize recklessness? Why do we pay for incompetence?

2008 Dec 23 05:50 PM

[Philip7:]

I think this is an outrage that is only going to snowball as more people become aware of it and react. Hopefully our congressional representatives will respond by passing laws allowing investors more influence in setting executive compensation. And as a taxpayer, I am very angry that all these tax dollars were given away to these financial corporations with minimal or no requirements to actually use them in a way that benefits the public.

2008 Dec 23 09:04 PM

[Ricard:]

I have one word to explain this: DECAY.

Look back 100 years into American history, and you may see similar panics, fear running wild, and runs on banks, but what you also had were titans of industry and banking. People stepped up to save the system because they realized that by doing so, they were saving themselves as well. They had no concept of a golden parachute because the captain always was the last to leave his sinking ship, if at all.

Zoom to present. The only real titan with the capital to rival the Rockefellers and Morgans of the past would be Warren Buffett. I can plug that name into the scenario I outlined above, and find it valid. I am not defending Buffett as altruistic - merely that I believe he realizes that saving the system is in his own best interest, and just happens to be in ours as well. Is this true of the majority other prominant corporate CEO? Sandy Weill, Vikram Pandit, Kenneth Lewis, Rick Wagoner, Paul Otellini, Jack Welch, etc -- how much of their companies have they ever owned? How much do they truly risk if their company, or the system as a whole, went bankrupt? The parachute they've carefully crafted is worth more than their ownership in the company; therein lies their interests, and therein lies the decay of Corporate America. They can give a damn about the company they wrecked - it just doesn't matter to them, or at least not in the way that Berkshire Hathaway means to Buffett, or Standard Oil to Rockefeller. I'll concede that they may be outstanding people of the highest caliber and integrity - just that their interests are built in a completely different manner than they were in the past.

Today's solution to this problem has been to grant these "titans" options in the hope that fake ownership would inspire real responsibility. Unfortunately, it just doesn't work that way - options backdating (remember that?), mass selling to "diversify" their holdings (just look at Chambers and his CSCO sells in the past 10 years - it'll make you sick) - you name it, and these CEOs have found ways to suck their companies dry and dissociate themselves from the hand that fed them. Then, like Sandy Weill, Hank Greenberg, Stan O'Neil and others like them, they walk away, fat off the company's dime, without a worry in the world. All perfectly legal (except for the backdating).

Decay, my friends, decay.

2008 Dec 24 03:30 AM

[John02144:]

I've heard that the argument that if we don't permit these corporate welfare kings to receive huge salaries and bonuses from taxpayer/shareholders, they may flee their banks (and go where, new hedge funds?) I say let them go, but have them surrender their passports first, so they don't go far.

2008 Dec 24 06:26 AM

[Jason Rines...:]

Because when a culture has enough of the basics in life we outsource the jobs we do not wish to do ourselves. The middle man who produces the least gets the best compensation for a time, until the house of cards collapses and the producer works very hard for a time but then reaps the rewards. Such cycles shall continue until mankind gets much better and applies genetic engineering.


On Dec 23 05:50 PM M-P wrote:

> I believe in capitalism and the implied pay for performance contract,
> but I have trouble with the bank execs receiving this kind of $ when
> they are being subsidized by the taxpayer because they took undue
> risk. Why don't we look at a clawback provision whereby we take back
> $ that was ill-gotten via reckless leverage and risk. Unfortunately,
> the seeds of failure were planted a number of years ago and we are
> now cleaning up the mess. Why do we reward malfeasance? Why do we
> subsidize recklessness? Why do we pay for incompetence?

2008 Dec 24 10:08 AM