Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout

(Update4)

Published on Bloomberg.com, by Karen Freifeld, July 30, 2009.

(Bloomberg) – Citigroup Inc., Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds, according to a report by New York Attorney General Andrew Cuomo.

Cuomo analyzed 2008 bonuses at nine banks that received Trouble Asset Relief Program financing from the U.S. government. New York-based Citigroup and Merrill, which has since been taken over by Bank of America Corp., received TARP funding totaling $55 billion, Cuomo said.  

“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” Cuomo’s office said in the 22-page report. “When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished” …

… Egregious Behavior:

  • The bill, which needs approval from the House and Senate, would allow banking agencies and the Securities and Exchange Commission to bar compensation practices that push financial companies to take “inappropriate risks.”
  • Frank said today in a telephone interview that the House tomorrow will consider his legislation to allow shareholders to hold an annual, non-binding vote on executive pay and require regulators to set pay restrictions that prevent excessive risk taking.
  • “Attorney General Cuomo’s report on executive pay at companies receiving taxpayer bailouts is shocking and appalling,” said House Committee on Oversight and Government Reform Chairman Edolphus Towns, a Democrat from New York. “Companies that only months ago were facing bankruptcy and sought the help of the Federal government are now paying out billions in compensation — and in some cases without reimbursing taxpayers. This egregious behavior proves that Wall Street still doesn’t get that times have changed and the old way of paying executives is long gone.”

Part of Their Lives:

  • Towns said in a letter to Cuomo that he would hold a hearing after the August recess to examine the Obama administration’s reforms in pay practices at companies that received TARP funds.
  • In October, industry veterans including John Gutfreund, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc., said Wall Street would insist on paying bonuses in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry.
  • Odds that Wall Street will forgo the payouts are “slim to none,” Gutfreund said in October. “They’re going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.” (full text).

(Contact the reporter on this story, Karen Freifeld in New York ,by e-mail).

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