Big Banks’ HUGE Bonuses Draw Federal Ire – But No Action

As long-term unemployment in US hits record levels,

top execs in the American financial sector were being rewarded at a pace even the Federal government –

which has otherwise given the big banks just about everything they want – finds unacceptable.

Of course, it’s not going to actually DO anything, but, hey, it’s still Cheney / Bush America, whoever may sit in the White House.

With the financial system on the verge of collapse in Black September 2008,

As long-term unemployment in US hits record levels,

top execs in the American financial sector were being rewarded at a pace even the Federal government –

which has otherwise given the big banks just about everything they want – finds unacceptable.

Of course, it’s not going to actually DO anything, but, hey, it’s still Cheney / Bush America, whoever may sit in the White House.

With the financial system on the verge of collapse in Black September 2008,

a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners.

The federal authority on banker pay says that nearly 80 percent of that sum was unmerited.

Kenneth R. Feinberg, the Obama administration’s special master for executive compensation,

named 17 financial companies that made questionable payouts,

totaling $1.58 billion immediately after accepting billions of dollars of taxpayer aid,

according to two government officials with knowledge of his findings who requested anonymity because of the sensitivity of the report.

The group includes Obama administration TBTF favorites like Goldman Sachs, JPMorgan Chase and the American International Group

as well as small lenders like Boston Private Financial Holdings.

Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses.

Despite this scathing indictment, Mr. Feinberg has very limited power to reclaim any money –

and there’s no hint so far the Obama regime is going to do much to help him.

He can use his status as President Obama’s point man on pay to jawbone the companies into reimbursing the government,

but he has no legal authority to claw back excessive payouts.

Mr. Feinberg’s political leverage has been weakened by the banks’ speedy repayment of their bailout funds –

which was, OF COURSE, the whole reason they re-paid with such quickness:

precisely so they could AVOID being under Federal “jurisdiction” when it came to this, or any other number, of key issues.

Eleven of the 17 companies that received criticism in the report have repaid the government with interest,

so they have no outstanding obligations to reimburse – what a surprise 😉 .

As a result, Mr. Feinberg will merely propose that the banks voluntarily adopt a “brake provision”

that would allow their boards to nullify or alter any bonus payouts or employment contracts in the event of a future financial crisis.

All 17 companies have told Mr. Feinberg that they will consider adopting the provision, though none has committed to do so.

Good luck on that one, Ken.

On Wall Street, meanwhile, profits and pay have already rebounded.

Again, what a surprise.

Goldman Sachs is on pace to hand out an average of $544,000 per worker in salary and bonuses,

though many could earn several times that amount.

JPMorgan Chase’s investment bank is on track to pay its workers, on average, about $425,000,

while the average Morgan Stanley employee could collect about $260,000.

If the second half of 2010 plays out like the first half,

Wall Street bonuses will be paid out at about the same level as last year and similar to 2007 levels,

when the crisis had just started to unfold.

Now isn’t THAT reassuring.

Mr. Feinberg was also named as the independent administrator for claims tied to the BP oil spill,

making it likely that the release of his findings on the financial firms will be his final act as the overseer of banker pay.

The review, mandated by the 2009 economic stimulus bill, broadened the scope of Mr. Feinberg’s duties

to include examining the pay packages of top earners at 419 companies that accepted bailout funds.

However, it did NOT give him the power to demand changes to the compensation arrangements,

as he did in each of the last two years at seven companies that received multiple bailouts.

Mr. Feinberg spent five months reviewing compensation paid to each company’s 25 highest earners

between October 2008, when the first bailouts were dispensed, and February 2009, when the stimulus bill took effect.

He narrowed his scrutiny to about 600 executives at 17 banks, with payouts totaling $2.03 billion.

Mr. Feinberg’s criteria for identifying the worst offenders were

• large payouts, in aggregate or to specific individuals;

• overly generous exit packages;

• or a failure to provide clear performance criteria or other rationale for extra pay.

Mr. Feinberg then approached each of the 17 companies with his proposed remedy during conference calls.

The 11 companies that have fully repaid their bailout money are:

American Express, Bank of America, Bank of New York Mellon, Boston Private, Capital One Financial, Goldman Sachs, JPMorgan, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo.

The six companies that have not fully repaid their bailout funds are:

A.I.G, Citigroup, the CIT Group, M&T Bank, Regions Financial and SunTrust Banks.

Among the banks that have not fully repaid the government,

Citigroup was identified by Mr. Feinberg as having the most egregious compensation packages during the bailout period.

[Full disclosure: Citibank is my personal bank, and I have to confess I LOVE their service 😉 – seriously. ]

The bank handed out several hundred million dollars in pay in 2008 as it struggled to stay afloat.

Roughly two-thirds of the outsize payouts were from bonuses awarded to Andrew Hall and another trader who were part of the bank’s Phibro energy trading unit.

Citigroup sold that business to Occidental Petroleum last fall, under pressure from Mr. Feinberg,

after the disclosure that Mr. Hall had received a $100 million payout.

His review is among several compensation initiatives scrutinizing banker pay.

In June, the Federal Reserve ordered about two dozen of the biggest banks to address several pay practices

that, even after the crisis, it said encouraged excessive risk-taking.

Of course, we know how much the TBTF banks “fear” the Fed –

Wait, they ARE the Fed, and we don’t just mean that figuratively either,

since the Federal Reserve is, as colleague Keith Timimi pointed out, A PRIVATE BANK –

albeit one with great public responsibilities, which, of course, it usually ignores in favor of the direct interests of its member institutions.

European banking regulators introduced tough new standards for bonus payments in July, according to this article from the New York Times.

And the Federal Deposit Insurance Corporation is developing a plan that would partly tie bank insurance premiums to the perceived risk of their executive pay packages.

That proposal could be reviewed by the agency’s board as early as this month.

FDIC head Betsy Bair is great – but we’ll see how far this plan actually gets 😉 .

We’ll be surprised if anybody ever hears about it again.

But that’s just us.