Key Citi Exec Leaves for MasterCard: TARP Strikes Again

Citigroup (C) announced the departure of another key executive on Friday. Ajay Banga, the CEO of Citi's Asia-Pacific Region is leaving the company after 13 years to join MasterCard (MA) as its COO and heir apparent to the top spot a year from now.

In Banga's tenure at Citi, he has led major divisions all over the world, proving his ability to manage diverse products and business lines in almost every geography. Last year his division contributed some 30% of Citi's revenues and he was rewarded appropriately for his contribution, becoming one of the company's top five compensated staff in 2008.

Now undoubtedly in no small part because of pending TARP restrictions on how much Citi can pay him going forward, Banga has flown the coop to MasterCard, which is not hamstrung by executive pay limits imposed by government overlords.

Many think the executive compensation limits imposed on TARP recipients are good and will keep "those greedy bankers" under control. But the reality is that there are actually some really good bankers out there who contribute significantly to the performance of their companies and therefore have historically been well paid for their skills. Under the TARP regime though, they will not have the incentive to stay when they know they can make much more at other unencumbered companies.

So the TARP-restricted company again loses some of the very talent it needs to return to profitability. And of course, it is in everyone's best interest, including the government (aka taxpayers) and other shareholders, for the firm to become profitable again. Because once it does, the taxpayers gets their TARP funds back.

But then how do we punish those greedy bankers if we don't cut their pay, right?

Disclosure: Long C, BAC, XLF

Comments

[Nowafarmer:]

What a crock, it's easy to blame TARP for everything. I don't believe all bankers - having spent almost 30 years in the business myself, are only motivated by greed. Many people, if not most, work for the challenge and opportunity to do new things. This seems more like an opportunity for a new challenge vs greed, but I obviously haven't seen the employment contract.

Jun 21 08:02 AM

[Angry Banker:]

At Citigroup, under the "American Recovery and Reinvestment Act of 2009" (the legislation which places the compensation restrictions on TARP firm executives), Ajay Banga would be limited to a maximum compensation of $500,000 annually until the TARP funds are repaid. Further, he could be awarded restricted deferred stock up to a maximum of 1/3rd of his annual compensation (so another $133,333 in restricted stock). So compare his maximum 2009 compensation of $633,333 to his 2008 compensation of $10+ million and I think it becomes clear why he thought it was time to move on to greener pastures.

Now at Mastercard, his compensation is back at the levels he enjoyed before TARP. He will earn an $800,000 salary, a $4.2 million signing bonus, and $4.9 million in stock options.

Or maybe he's just looking for new challenges, in which case he should have told Mastercard he will be happy take the same salary he's getting at Citigroup.


On Jun 21 08:02 AM Nowafarmer wrote:

> What a crock, it's easy to blame TARP for everything. I don't believe
> all bankers - having spent almost 30 years in the business myself,
> are only motivated by greed. Many people, if not most, work for
> the challenge and opportunity to do new things. This seems more
> like an opportunity for a new challenge vs greed, but I obviously
> haven't seen the employment contract.

Jun 21 08:21 AM

[mopacman:]

Well said

Jun 21 08:22 AM

[captainccs:]

The right thing to do is to break up the banks that are too big to fail. Micro management of these behemoths is not the solution. Get out the trust busters!

Jun 21 08:38 AM

[sink:]

Wait until you see how forgiving and generous of the new GM to its union employees/master. If I were investing in GM before, I would not invest a single dime in the new GM, not even its secured bond. I would not buy car from the new GM, luckily, I still have Ford to choose from if I opt for buy America. I wonder how likely the UAW will screw Ford over, since the UAW own at least half GM and Chrysler? Why not, screw your competitors from within?

As of Citi? It is over. China banks are the future. The US is determine to restrict its bank growth, which is detrimental to global banking competition. If I were Citi, I would sell itself to the highest bidder/country. Pay off my TRAP ... oops, did I spell trap? I mean (re)TARP, and Citi will move to that country.

Jun 21 11:46 AM

[Bandwagon2009:]

Whilst I agree with the author in general, i.e. pay limits do nothing -- and govt meddling / micro management is not good in the long term. Not sure that was the only reason that Banga left Citi....it could be that he wants a shot at the top spot which would be harder at Citi -- Pandit is not going anywhere anytime soon...and if he does not sure the board/govt would select anyone from the inside.

Jun 21 12:37 PM

[NANA:]

BOO HOO!!!All the top people should go. Who ran the company down. Now he can do the same at the new place!! Give him a huge salary and Bonus. Then he can retire with the NEW money. There are plenty of NEW, YOUNG ,and older people ready to step in for a JOB!! I am sure they will do a Heck of a lot better then the people WHO ran us in to the GROUND. CHINA OH please!!, go visit CHINA. Then write some thing about it...

Jun 21 01:31 PM

[Fourpenny Guy:]

Not As Advertised. That should be Citi's new logo for its ludicrous joint venture with Morgan Stanley. Imagine, Citi cannot manage its own businesses, and nearly caused Legg Mason to fail by dumping bad assets onto Legg in exchange for its brokerage and exclusive rights to Legg funds. However, LM management realized the error of their choice, and opened their funds to other dealers. Also, former Legg Mason brokers left for other stronger firms. In short, Citi failed to deliver more profits to Legg, and half the assets left LM or were whittled away by the market losses.

Now, Citi made the bold claim that its joint venture with Morgan Stanley is a world beater, a new breed of brokerage. What they don't realize is that investors don't want to be cheated by two mediocre, marginal firms, who charge ridiculous fees, and worse, don't have and won't have a single platform for clients for up to two years. In short, the two firms lied. They don't have products for clients, brokers are leaving, and clients don't want the association with Citi, a failed firm. If someone can tell me what Morgan's brokerage does, I'd be interested to hear.

Finally, people who work in the bowels and at the top of both firms tend to be illiterate drones who lack the skills to run complex deals of any type. Their world views are narrow, and their lack of education is dangerous because clients lose money. I would encourage clients and brokers to leave for smaller firms, and steer clear of what will be a failed joint venture. Citi will continue to lose brokers, and assets, and now, key personnel.

Ask yourself this question. Do I want my money at a firm whose parent company cannot repay TARP and has habitually lied about its true financial condition? Morgan Stanley will end up like Legg, since they earnestly believe that their 6,000 broker experience gives them the skills to manage 18,500 brokers. The competition should not be worried about the joint venture. There really isn't a unified firm, and you have two years to hammer away at it until nothing is left.

Jun 21 02:55 PM

[Genesis:]

This IS a load of crock! We need banking to be boring again. What's so difficult about taking in deposits and finding the least risky borrowers to lend assets to? A good CEO could theoretically leave the office early every afternoon for a game of golf! What's so difficult about managing NOT to leverage your bank at a 30:1 debt to equity ratio? Since I've managed to avoid that in my own personal bookkeeping, maybe I'd be a better banker than some of the bums who are in charge now. We don't need "whiz kid" bankers - just bankers who are not "morally-challenged"!

As for those "investment banks," let 'em all go bankrupt for all I care. Who needs 'em? As Peter Schiff says, there are plenty of smalll financial institutions waiting in the wings to take their places.

Jun 21 04:49 PM

[FloridaBoy2:]

If the financial industry adhered to sound business practices the mess we are in would not exist. Our 401K's etc. would not have been decimated. Ajay may have been a 'good guy' but he has moved on to bigger and better things. 401K's and home values have not. I don't recall any TARP relief for that issue.

Jun 22 07:53 AM

[lostark98:]

Challenge or greed? I'm not an executive and I'm not a banker. So I'm trying to understand what executives (from any industry,) bankers, movie stars, rock stars do with their uber-millions a year. (I know, some of them actually do a lot of good with it, but not enough of them can claim philanthropy as a primary motivator.)

Granted, $1 million doesn't go as far as it used to, but really, $10 million / year is not sufficient? What could you possibly do with $10 million year after year? I'm finding it difficult to believe that there is anything more than greed at work here. There are plenty of challenges that don't provide tens of millions of dollars year after year.

Then I see the amount of money sucked out of so many companies to pay all these executives and "top producers" - money that could be invested in the business - and I wonder what the investors and shareholders in these companies are thinking. I don't think we've seen the last financial collapse yet...

Jun 22 08:53 AM

[battman:]

All the big banks are paying for the disaster they ran for so long. The fact he has to take a pay cut from a salary and bonus plan that was based on lies and irresponsible management is just too bad. He may be "the honest one" who suffers for everyone else mistakes, but that's tough, explain it the 8,000,000 people who got laid off.

But the fact that he left for the money,as you imply, tells me he's more concerned about himself than the money he's supposed to be protecting at the bank. That tells me he would much rather do something with a short term gain for himself than for the long term gain of the investors. You know what, maybe he wasn't the good one that got away.

Jun 22 09:45 AM