Published October 27, 2009

Bailed-out Citi, BOA paid top execs average of US$18m each last year

After pay curbs, White House tackles issue of 'too big to fail' institutions

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(WASHINGTON) The amount of taxpayer funds they've taken: US$90 billion. The amount of money they've paid top executives: $18.2 million. Each.

A closer look at the report released by Treasury Department paymaster Kenneth Feinberg last week show that the average pay of top managers at Citigroup and Bank of America was almost double that of the other five companies bailed out by the US government.

The two banking behemoths have yet to repay their rescue funds, which cumulatively come up to a hefty US$90 billion.

Citigroup, based in New York, paid US$390.2 million to 21 people, an average of US$18.6 million each, while North Carolina-based Bank of America paid US$227.8 million to 13 executives, or $17.5 million apiece. The review excluded top-paid employees from 2008 who have since left.

Mr Feinberg has since ordered 2009 pay cuts averaging more than 50 per cent for 136 executives at the seven firms after President Barack Obama said that 'it does offend our values' when company executives 'pay themselves huge bonuses even as they continue to rely on taxpayer assistance'.

Overall, the employees whose pay was reviewed by Mr Feinberg will get US$339.7 million this year, or an average of $2.5 million.

Bank of America will pay the 13 top executives a total of US$78.6 million in 2009, according to Mr Feinberg. While the total is down by 66 per cent from last year, the executives will still get an average of about US$6 million each.

CEO Kenneth Lewis, 62, who plans to step down at the end of the year, is working for free this year.

However, he may still stand to collect pension benefits that earlier this year were valued at US$53.2 million.

Citigroup's 2009 total includes US$1 for chief executive officer Vikram Pandit, 52, who in January volunteered to slash his pay after getting US$10.8 million in 2008.

Mr Feinberg cut the Citigroup executives' pay by US$272 million, or 70 per cent, from last year. They'll still get US$118.4 million this year, or an average of US$5.6 million each. Most of the pay is in the form of restricted stock, complying with a requirement by Mr Feinberg that the companies encourage executives to focus on long-term performance.

But some say that Mr Feinberg's directives are merely stopgap measures that do nothing to address the fundamental problem stemming from the near-collapse of the financial system last year.

Some economists believe the mammoth size of some institutions is a threat to the financial system at large. Because these companies know the government could not allow them to fail, the argument goes, they are more inclined to take big risks.

Now, Congress and the Obama administration may introduce legislation as early as Thursday that would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution.

The White House plan as outlined so far would already make it much more costly to be a large financial company whose failure would put the financial system and the economy at risk. It would force such institutions to hold more money in reserve and make it harder for them to borrow too heavily against their assets.

Setting up the equivalent of living wills for corporations, that plan would require that they come up with their own procedure to be disentangled in the event of a crisis.

'These changes will impose market discipline on the largest and most interconnected companies,' said Michael S Barr, assistant Treasury secretary for financial institutions.

As Wall Street has returned to business as usual, industry power has become even more concentrated among relatively few firms, thus intensifying the debate over how to minimise the risks to the system.

Some specialists, including Mervyn King, governor of the Bank of England, and Paul A Volcker, the former chairman of the Federal Reserve, have proposed drastic steps to force the nation's largest financial institutions to shed their riskier affiliates.

Some regulators and economists in recent weeks have suggested that the administration's plan does not go far enough. They say that the government should consider breaking up the biggest banks and investment firms long before they fail, or at least impose strict limits on their trading activities.

Republican and Democratic lawmakers generally agree that the 'too big to fail' policy of taxpayer bailouts for the giants of finance needs to be curtailed. But the fine print - how to reduce the policy and moral hazards it has encouraged - has provoked fears on Wall Street. -- Bloomberg, NYT