Banks have proven to be remarkably immune to condemnation over senior level pay. CEOs and top level producers seem to have an undimmed sense of entitlement, even though the nine banks receiving the first Treasury handouts equity purchases earned a collective $305 billion from 2004 to mid 2007, followed by $323 billion in writedowns.
But the powers that be are keeping up scrutiny and pressure. The latest salvo comes from New York attorney general Andrew Cuomo. At this stage, Cuomo appears merely to have made a request to the nine recipients of Federal largess to cough up fairly extensive information about bonuses. If the firms fail to respond, he may try to force them to comply. The New York AG would then resort to a legal theory that is a bit of a stretch. Even if Cuomo is unlikely to win a case based on this theory, it may have enough substance to survive a motion for summary judgment from the opponents. If it does, Cuomo can then proceed to discovery, which means he can gather a great deal of potentially embarrassing information.
From the New York Times:
Under pressure from members of Congress to curtail compensation, banks now face a new threat from Andrew M. Cuomo, the New York attorney general, who sent a letter on Wednesday to nine big financial institutions receiving government aid.
Mr. Cuomo gave the companies a week to provide a “detailed accounting regarding your expected payments to top management in the upcoming bonus season.”
That could prove difficult for the banks, which typically do not complete bonus pools until later this month at the earliest.
Mr. Cuomo’s letter also warned that payments worth more than the services provided by executives might violate New York law.
The letter follows one sent earlier this week to the same banks by Henry A. Waxman, the California Democrat who is chairman of the House Committee on Oversight and Government Reform, urging them not to use any government money for bonuses or other payments and asking for data on pay going back to 2006…
Any lawsuit based on the law cited by Mr. Cuomo would take some creative legal footwork, said Edward R. Morrison, a law professor at Columbia University. The law permits creditors to try to recover or block payments. “You have to find a way for the attorney general, for Cuomo, to shoehorn himself into the position of a creditor,” Professor Morrison said. “It’s not implausible.” The attorney general could act under the law, Professor Morrison said, if New York state pension funds hold bonds issued by the nine companies. Mr. Cuomo might also claim jurisdiction over any of the companies that might owe taxes to New York.
The attention raised questions on Wall Street, because bonus payments are already expected to be as much as 50 percent smaller than last year and perhaps even far smaller at banks that posted big losses. The New York State comptroller estimated that Wall Street paid $33.2 billion in bonuses for 2007, compared with $33.9 billion the year before…
Lloyd C. Blankfein, the chief executive of Goldman Sachs, received bonus and stock awards worth about $68.5 million last year, while Goldman’s co-presidents got just slightly less. Those numbers will not be repeated. John J. Mack, Morgan Stanley’s chief executive, declined to take a bonus last year…
In his letter, Mr. Cuomo asked specifically for a description of bonus pools for this year, a description of how money in those pools would be allocated, an explanation of how that allocation might have changed since each company received money under the federal Troubled Asset Relief Program and a description of bonuses paid to executives earning more than $250,000 in 2006 and 2007….
Citigroup said it would “cooperate with federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices. In addition, we will of course adhere to applicable legal and regulatory requirements, including those in the federal government investment program, such as restrictions on executive compensation.”…
Other financial institutions did not return calls.
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It’s very clear and also fair and just. Since all the previous years bonuses were the result of “pseudo-profits” (not real profits but fake ones which are now known to be so), the bonuses should also be “written down ” and “recovered” from the recipients. And I am not talking about this years bonuses, I am referring to the earlier boom year bonuses starting from 2005 when this whole scam started.
This year they should thank their stars that they still have a job, forget the bonus.
I guess this proves that investment banks are Marxist, since the workers get paid instead of the owners (shareholders).
I’d like him to embarrass bankers by interrogating them about their bussines plans
Cuomo: How did your bank try to make money
Banker: loans to people who obviously could not repay, and then selling the loans to people who were to stupid to recognize us as grifters”
this reminds me somewhat of george w demanding that saddam provide evidence of his weapons of mass destruction.
the whole point with bonuses is that the entire process is shrouded in mystery. the banks’ own employees do not know who gets paid what, or how the money gets allocated. all they see is the overall size of the bonus pool, which is in the public domain anyway, and their own personal windfall.
if detailed information about bonus allocations is publicly disclosed it will rob the banks’ management of their most potent tool for maintaining staff discipline. it will become clear to all at the bank who has been doing well and who badly. who has been molly-coddled and who has been skinned alive. many employees will be crushingly disappointed and resentful. management will be left feeling naked in public.
i can’t wait..
The Ghost Of Eliot Ness
It might be a little hard to embarrass some of those guys.
Just another “Heckuva job, Brownie moment” and a clear signal that the country is still in a strangle hold by the financial industry.
Can anyone justify transferring taxpayer capital to incompetent and criminally negligent employees of the banking system ? This is exactly what is proposed. The taxpayer provides capital to shore up reserves while the banks transfer an equal amount to discretionary employee bonuses. The continued payment of common dividends is ridiculous enough, now this.
Any firm receiving Federal money better not be paying out one damn penny in bonuses to management. In fact, any executive bonuses for the past 3 years should be clawed back.
Also agree with above comment that it will be a little hard to embarrass some of those guys. Unrivaled greed requires thick skin.
beware of NY atty generals bearing subpeonas, as there just might be red herrings wrapped inside….
If you haven’t seen the Fuld testimony, you should. He is asked about his personal compensation and he doesn’t answer for like a full minute. Astonishing that he doesn’t have an answer prepared, but that moment showed me he is at least human.
Memo to Cuomo:
RICO
Mr. Cuomo must have forgot about federal preemption and visitorial powers issues – he has no authority to investgate a national bank – most of these entities are federally chartered. If I were them I would ignore Andrew.
We need as a nation to start placing tv crews outside these executives homes 24/7.
They then should be followed and questions launched through loud-speakers.
There should be special websites
dedicated to them.
They should know no peace.
Is it mere simple coincidence that pseudo profits and actual cash pulled out of the banks is nearly equal [for sue there is likely some non-cash compensation in the figure] …
Sure is odd though.
Cuomo is just throwing a bone at average Joe. CEO will always take the bacon, and leave Joe in the dust.
Remember Spitzer? Lawsuits were in fact to get the NY office, and business for his buddies. The real aim was to have money and power to shake the girl friend of average joe in hotels.
Average joe always get sticked.
Lost his stocks at the BOTTOM!
http://www.marketwarnings.com/2008/10/spring-on-right-side-of-wall-street.html
We all agree, this is the biggest rip off in history. My point is, lets not let it happen again. I think a law that specifies "Claw backs" woulda prevented this in the first place and will not let it happen again. The Idea being, if the executives thought they may have pay clawed back if the bank looses money OVER THE LONG TERM, then the bonuses get pulled back. THink Angelo mozillo woulda made those loans if he wasn't going to retire soon and coulda lost his pay? THink S&P woulda rated those mortages if they had some type of fiduciary dudy to the financial community? A claw back would put an end to this in my opinion…
Embarrass?
Cuomo is losing his time. Wall Street doesn’t have any concept of shame.
Cuomo better be squeaky clean in his private life. Even though I view this as politics I still hope he forces some change.
Hope he learned from Spitzer’s fall.
It is the huge incentive payments that have caused this problem in the first place. If a company is contracted to pay someone $20 million or $50 million for a “good year,” that person faces an “end game” situation where winning means nothing in the future matters. So, they will take huge risks with other people’s money, maybe shoot grandma, to get the bonus. The idea that you can’t find “qualified” people to sit at the top of these organizations without paying these kinds of amounts is insulting, absurd, and obviously self-serving.
The true cost of fascism is apparent here.
These crooks have no shame after their massive looting scheme went bust.