Banks Getting U.S. Aid Pressed Over Bonus Plans
Thursday, October 30, 2008
NEW YORK, Oct. 29 -- New York Attorney General Andrew M. Cuomo is seeking detailed information about bonus plans at nine banks that got emergency federal funding this month, following a similar demand by congressional investigators who want to ensure that tax dollars are not used improperly to pad executives' wallets.
The requests underscore the intense scrutiny the finance industry is coming under as Wall Street's year-end bonus season gets underway.
Indeed, congressional leaders from both sides of the aisle wrote letters Wednesday to Treasury Secretary Henry M. Paulson Jr. expressing concern that banks receiving taxpayer money not use the funds in inappropriate ways.
House Minority Leader John A. Boehner (R-Ohio), House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) demanded tougher rules on executive compensation. Under Treasury rules, banks that accept public funds under the capitalization program may pay departing executives up to three times their annual compensation, "lavish severance packages [that] could weaken public support for your critical efforts to stabilize the economy," Pelosi and Reid wrote in a joint letter.
Boehner also expressed concern about reports that PNC bank used public funds to help finance its acquisition of National City.
"Mr. Secretary, funds made available under the economic rescue package should not be used to pay for bank acquisitions, raises, and executive bonuses. These are not the types of expenditures you described during your many discussions on Capitol Hill earlier this fall," Boehner wrote.
The letters sent from Cuomo's office to the boards of Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo requested bonus pool projections for the year, information on how bonuses are allocated, comparisons of bonus pool calculations made before and after the government injected a combined $125 billion into the banks, and details on bonuses earned in the past two years by all employees making more than $250,000.
Cuomo's office will be looking out for potential violations of the state's fraudulent conveyance laws, the same grounds on which it went after American International Group. AIG, widely criticized for bankrolling a lavish retreat and hefty executive bonuses after receiving a federal bailout to avoid collapse, agreed last week to freeze more than $600 million it had planned to award in bonus pay.
The banks have until Nov. 5 to respond to Cuomo's requests.
Rep. Henry A. Waxman (D-Calif.), chairman of the House Committee on Oversight and Government Reform, on Tuesday sent letters to the same nine banks seeking similar information on pay.
The Treasury Department wants banks that receive taxpayer money to use the proceeds to make loans that could help unwind a tightening of credit. But there are no explicit requirements on how the money is spent.
Most of the executive pay provisions in the emergency bill authorizing the capital injections are focused on golden parachutes, the windfalls frequently bestowed on departing executives. Compensation experts have said the new congressional guidelines are too weak and too narrow in scope to alter a pay system that encouraged Wall Street executives to take on enormous risks -- risks that led to the near-meltdown of the global banking system.