Banks Repaying TARP To Be Free Of Bonus Restrictions

Bloomberg reports that banks repaying TARP to be freed of bonus curbs imposed by Dodd.

(emphasis mine) [my comment]

Banks Repaying TARP to Be Freed of Bonus Curbs Imposed by Dodd
By Christine Harper and Elizabeth Hester

June 10 (Bloomberg) -- JPMorgan Chase & Co., Goldman Sachs Group Inc. and the eight other banks cleared yesterday to repay their U.S. government rescue money will be freed from legal limits on bonuses for their top 25 employees.

The pay curbs, stricter than those already included in Treasury department rules, were inserted by Senator Christopher Dodd, a Connecticut Democrat, as an amendment to the Obama administration's economic stimulus plan in February. They expire when a bank repays money received from the Troubled Asset Relief Program even if the government still holds warrants to purchase the bank's common stock, according to the legislation.

Financial executives and recruiters warned that banks under the restrictions would have a tougher time recruiting and keeping employees. Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. are the largest banks left out of yesterday's list of companies approved by the Treasury Department to refund the government.

Bank of America loan-loss backstop = $97 billion
Citigroup loan-loss backstop = $245 billion

It will be tougher for these two to repay tarp funds. As for
Wells Fargo, not sure why they aren't repaying TARP (less addicted to bonuses maybe?)

"Stronger companies may really look to shore up their talent pool with top players and the place they'll go hunting for them is companies with TARP restrictions," said Steven E. Hall, managing director of New York-based Steven Hall & Partners. [More public relation BS from Wall Street. This is all about the bonuses.]

For banks that had received more than $500 million of TARP money, the so-called Dodd amendment prohibits cash bonus payments to the five most senior officers and to the 20 "next most highly compensated employees." [THIS is why they are so desperate to repay tarp: Bonuses for the top 25 employees] Bonuses paid in restricted stock were allowed, as long as they didn't vest until the TARP money was repaid and as long as the restricted stock isn't worth more than one-third the employee's total annual compensation.

How to Implement?

Banks have been waiting since February for guidance from the Treasury on how to implement the rule, including clarification on how to determine which 20 employees to include.

Bonus payments have traditionally made up the majority of pay for top executives on Wall Street, which capped salaries as part of an effort to tie compensation to revenue
[These "effort to tie compensation to revenue" failed miserably]. Public scrutiny intensified last year when Merrill Lynch & Co. awarded $3.6 billion in bonuses after failing to make a profit in 18 months [ridiculous]. Dodd's amendment was added to the American Recovery and Reinvestment Act of 2009 after Merrill's awards were publicized.

Some banks have already responded to the bonus limits by ratcheting up salaries.

Morgan Stanley, which plans to return the $10 billion in TARP money it accepted in October, said on May 22 it was doubling the base salary of Chief Financial Officer Colm Kelleher and raising salaries for Co-Presidents James Gorman and Walid Chammah, among other top executives.

Paying TARP

In addition to JPMorgan, Goldman Sachs and Morgan Stanley, the banks announcing yesterday that they plan to repay a combined $68 billion in TARP money were American Express Co., Bank of New York Mellon Corp., BB&T; Corp., Capital One Financial Corp., Northern Trust Corp., State Street Corp. and U.S. Bancorp.

Until the firms buy back warrants the government received as part of its capital injections, they remain subject to some TARP restrictions, said V. Gerard "Jerry" Comizio, a senior partner in the banking and financial institutions group at law firm Paul, Hastings, Janofsky & Walker LLP in Washington.

The restrictions include limits on common stock dividends and repurchases as well as the Treasury's own compensation provisions, which allow banks to recoup bonuses in some circumstances and prohibit banks from agreeing to give executives so-called golden parachute payments when they leave [This is the second most important reason for repaying TARP], he said.

(chart from CNNMoney)

Bloomberg reports that banks trade tarp for bonuses, debauchery, and jets.

Banks Trade TARP for Bonuses, Debauchery, Jets
Commentary by Jonathan Weil

June 11 (Bloomberg) -- Lock up the booze, and hide your wallet. America's most powerful, too-big-to-fail banks are turning in their TARP money. And you know what that means: It's party time again on Wall Street.

Ten U.S. banks gained permission this week to buy back $68 billion of shares they issued to the government under the Troubled Asset Relief Program. And thank goodness for that. For eight months, they endured the twin nuisances of mass hysteria and populist scorn for blowing taxpayer money on employee bonuses and junkets. Now they can tell the rest of the country to kiss off. There's nothing Barney Frank can do about it.

Finally, the richest bankers and traders at Goldman Sachs, Morgan Stanley and JPMorgan Chase can stop asking what their country can do for them, and start dreaming again about what they can do for themselves with their banks' [taxpayer] money. Biking to work is out. Helicopter commutes to the Hamptons will be back in. The opportunities are limitless. They're free at last.

What these masters of the government rescue need now is a shopping list -- a 10-step program to restore their remorseless, reptilian souls and help them rediscover the unique thrill that can come only from being paid millions of dollars to provide serv ices that are of no value to greater mankind. This brings us to our first agenda item:

No. 1: Reinstate the bonuses. Start with the top guys. That means you, Lloyd Blankfein, John Mack and Jamie Dimon. America is back. All we need is a little confidence. And there can be no confidence without the hope, however faint, that one day the son of some unemployed auto worker can grow up to make millions advising his dad's old company on its next Chapter 11 filing. Just keep repeating this line: We need to retain our best talent, or else we'll wind up the next AIG.

No. 2: Raise the bonuses. Because you can. Don't worry that Timothy Geithner at Treasury might unveil some new, vague "best practices" for banker compensation. They'll never stick. Your lobbyists can fix that.

No. 3: Relax your rules on corporate expense accounts. Scores, which I'm told is Manhattan's finest adult-entertainment hot spot, has re-opened after a two-year hiatus. A happy customer is a loyal customer. Tell your bank's traders to say Howard Stern sent them.

No. 4: Redecorate your office. Act quickly before former Merrill boss John Thain lands another job and hires all the good talent. Maybe you can find a $35,000 commode on legs that actually flushes.

No. 5: Buy that fleet of private jets you've been coveting ever since Citigroup canceled its $50 million Dassault Falcon 7X in January. Earmark at least half of them for executives' and directors' personal use. The Dow is up more than 2,000 points since March. Complacency is back, and it might not be for long. The Gulfstream G550, at $59.9 million, has great leg room.

No. 6: More junkets, more retreats. Now that you don't have to run your travel plans through a P.R. firm anymore, it's safe to hit Vegas again. The Wynn Tower Suites costs just $1,000 a night for a one-bedroom fairway villa. Don't forget the Tiffany swag bags and Mercedes shuttle rides for valued guests.

No. 7: Hire Kenneth Feinberg's law firm. The White House has tapped this Washington attorney to be "special master" overseeing the pay practices at TARP babies. Turns out the client list at Feinberg Rozen LLP includes several of them, such as Citigroup, Merrill Lynch and AIG, according to the firm's Web site. You can't have too many friends in high places should you ever need another dip at the taxpayer trough.

No. 8: Book the Rolling Stones for your next company party. Northern Trust got creamed in the press for hiring Sheryl Crow, Chicago, and Earth Wind & Fire to entertain clients at a golf tournament it sponsored in February. Might as well go all out and prove you're no longer under Geithner's thumb.

No. 9: Hire former Merrill boss Stan O'Neal to run your board's compensation committee. If you want your own $161.5 million severance package approved, it helps to have a man in charge who understands why you need one.

No. 10: Help out Geithner, and buy his house. The poor fellow could use a bailout of his own. You never know when he might have a chance to return the favor. This 3,600-square-foot, Tudor-style home in Westchester County, New York, has an eat-in kitchen with black granite countertops. And he's renting it out for $7,500 a month, after failing to find a buyer at $1.6 million. It would make a fine perk for one of your up-and- comers.

One last bit of advice: Whatever you do, don't buy the naming rights for a major league sports stadium [remember Citi Field?] or the jersey of a British soccer club. Even on Wall Street, some sins are unforgivable. reports that TARP Panel Chair says Repeat Bank Stress Tests 'Right Now'.

[Banks have no business repaying TARP: they need the money]

The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened
, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.
"We've already blown past the worst-case scenario on unemployment," she added.
The oversight panel's report noted that the unemployment rate is now 9.4 percent, with a 2008 average of 8.5 percent.
"If the monthly rate continues to increase during the remainder of this year, it will likely exceed the 2009 average of 8.9 percent assumed under the more adverse scenario," the report said.

Two weeks ago, I already commented on this Bailout Insanity And Bank Arrogance.

My reaction: US financial firms have received taxpayer assistance in the form of:

1) A $140 billion (illegal) tax giveaway
2) $43 Billion from AIG bailout (so far)
3) They have sold $330 billion worth of federally backed bonds
4) They are currently borrowing $555 billion from the fed. ($933 billion total reserves — 378 billion nonborrowed reserves = 555 billion borrowed reserves. (See Fed's website for more info))
5) They have exchanged $300 billion toxic securities for treasury bills at the Fed.
6) Fed has purchased $430 billion mortgage-backed securities
7) The PPIP program will soon buy $500 billion of their toxic assets.
8) $200 billion TARP funds (via capital purchase program)
9) etc...

Total = more than $2500 billion

Now some banks want to return a tiny portion of their taxpayer handout
[68 billion], the TARP funds, and start paying oversized bonuses again (with the rest of their taxpayer money). This is insane.

My reaction: Wall Streets addiction to undeserved oversized bonuses is revolting

1) America's most powerful, too-big-to-fail banks are turning in their TARP money.

2) They are repaying TARP funds to escape:

A) Legal limits on bonuses for their top 25 employees.

B) Rules prohibiting golden parachute payments for executives when they leave.

3) Stress test were flawed and banks still need this money.

4) Banks are returning TARP funds equal to less than a tenth of the taxpayer assistance they have receive d.

Conclusion: Bank executives deserve a huge bonus for the skill with which they have fleeced taxpayers.

This entry was posted in Bailouts, Federal_Reserve, Market_Skepticism, News_Developments, Wall_Street_Meltdown. Bookmark the permalink.

5 Responses to Banks Repaying TARP To Be Free Of Bonus Restrictions

  1. Vojvoda says:

    I don't want to defend banks, but the fact is that TARP was forced on banks by Paulson, Bernanke and Geithner. CEOs didn't a have choice (to refuse).

  2. Anonymous says:


    The banks probably didn't give a shit if they had to close literally overnight, and they knew the amount being offered by TARP would not prevent such implosions anyway.

    They probably felt to 'just get a few more bonus checks quickly'... cause they are gonna have to close up shop soon anyway and the Fed or the Treasury don't got enough money to keep them open.

  3. Sorry to be off topic but Eric what do you think about the story regarding the Italian authorities arresting two Japanese men with $130 billion US bonds hidden in a suitcase?

    Thats quite a bit of money.

  4. Anonymous says:

    Quote: "regarding the Italian authorities arresting two Japanese men with $130 billion US bonds hidden in a suitcase?"

    Most likely, this is a hoax story. The story does not make any sense. Take a look at the supposedly official picture displaying the bonds together with the official police hats. Does this look like a real police photo? Not to me. It is a hoax story.

  5. PierreLegrand said...
    Sorry to be off topic but Eric what do you think about the story regarding the Italian authorities arresting two Japanese men with $130 billion US bonds hidden in a suitcase?

    I saw that story and did an entry on it, Italy Seizes $135 BILLION Treasury Bonds And US Fiscal Circumstance Become A Laughingstock

    It is very interesting, and I am waiting to find out more.

    Anonymous said...
    Most likely, this is a hoax story. The story does not make any sense. Take a look at the supposedly official picture displaying the bonds together with the official police hats. Does this look like a real police photo? Not to me. It is a hoax story.

    The story is real. Click here for more information including links to two bloomberg articles.

    By the way, whether they are genuine or fake, the confiscated US bonds were no doubt heading to a "port franc". These places are a legal "no man's land", located in Switzerland but not officially on Swiss soil (like embassies). These "port franc" are used to store all types expensive and exotic (sometimes illegal) goods, including art, gold, weapons, bearer bonds, etc...

    My mother has been to Geneva's port franc several times to authenticate the art stored there (she is an art restorer).

    I will write an entry about these "port franc" over the weekend.

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