October 2009 Archives

Washington State-based Regents Bancshares Inc. took home $12.7 million in assistance. In exchange it gave the Treasury Department an equal amount of stock shares and exercised warrants.

Cardinal Bancorp II, based in Missouri, also received bailout funding. It received $6.2 million in exchange for subordinated debentures and exercised warrants.

Only four banks have received bailout assistance in October, and the two recent allocations were the first in three weeks, the longest period without one.

Kenneth R. Feinberg told a House oversight committee that he was taking a close look at approximately $200 million in bonuses that AIG is due to pay its top employees in 2010. The company came under fire earlier this year when it was reported that it would pay out $165 million in bonuses to employees of its financial products division.

AIG, which sustained heavy losses from imprudent bets on mortgage derivatives, got $68.9 billion in government assistance under the Troubled Asset Relief Program and has received nearly that much through other aid programs. As one of the top seven recipients of bailout money, the firm is subject to Feinberg's oversight.

Feinberg's legal authority to renegotiate compensation, however, is limited to employment contracts drafted after bailout aid was accepted. In his testimony, he said that he had already had success in getting "almost all" firms to voluntarily lower previously agreed upon contracts, the Washington Post reported. He said he expected similar success with the pre-existing AIG retention bonuses.

The auto lender will likely get between $2.8 billion and $5.6 billion, company officials told the paper, for which it would trade preferred stock. Since GMAC has received $12.5 billion in bailout assistance.

As the lead wholesale lender for General Motors dealerships, the company has struggled alongside the rest of the auto industry. At the height of the financial crisis last year, it received regulatory approval to transform into a bank holding company, thus making it eligible for assistance under the Troubled Asset Relief Program.

GMAC's involvement in the bailout also subjected it to the Treasury Department's stress tests, which determined the company required an additional $11.5 billion to maintain adequate capital levels.

The bank, which has received $45 billion in assistance under the Troubled Asset Relief Program, has long been interested in exiting the program, in large part because the aid had come with a host of regulations on such matters on executive pay and the distribution of dividends.

The former issue came to a head just last week, when the Treasury Department's pay czar slashed salaries at the seven largest bailed-out firms, including Bank of America. That ruling would not longer apply if the bank no longer owed the government TARP money.

Leaving the program, however, is not as easy as writing a check. The Treasury has said that bank seeking to redeem the stock and warrants they gave the government in exchange for assistance must prove they are stable without it and can raise capital without government guarantees.

The current dispute centers on the bank's capital position, the Wall Street Journal reported. Bank of America has raised $40 billion in additional capital since May - enough, some bank executives say, to allow it to return the TARP funds. Officials at the Treasury Department, however, "believe it ought to replace some of the federal money with new capital above and beyond the $40 billion of equity identified so far this year."

To raise additional capital, Bank of America would have to sell shares, thereby diluting the positions of existing shareholders.

The latest announcement came as the bank released quarterly earnings data. It reported third quarter profits of $559 million and said its portfolio of bad loans was shrinking.

The company's stock rose more than 9 percent on the news, closing yesterday at $50.65.

PNC has been unique among larger banks in taking its time to repay money received under the Troubled Asset Relief Program. Most have rushed to redeem shares and warrants given the government in exchange for assistance, citing concerns over restrictions on executive pay and the distribution of dividends.

In order to exit the bailout program, the Treasury requires banks to prove they can survive without government aid and can raise money without government guarantees.

A stock offering has been a popular method of meeting both challenges, but PNC has explicitly rejected that option, saying it dilutes the holdings of existing shareholders. That position, however, has forced the bank to wait until its own capital position has sufficiently improved.

Under the plan, the top 25 executives at the seven firms to receive the most funding will earn approximately 50 percent of what they took home a year ago. In addition, the cash portions of their compensation will be slashed 90 percent, thereby more closely tying pay to performance.

The decision to cut salaries was not unexpected. After public outcry over massive bonuses being taken at firms dependent on public assistance, the administration appointed Kenneth R. Feinberg as pay czar, giving him power to set salaries for the top bailed-out firms.

Although his official report is due in the next few days, his informal efforts have already borne results. Citigroup Inc., facing pressure from Feinberg, agreed to sell a unit headed by a trader who stood to make $100 million rather than face a potential lawsuit if his salary was slashed.

And Kenneth D. Lewis, the chief executive of Bank of America Corp. who recently announced his resignation, agreed to forgo his own salary and bonus for the year after discussions with Feinberg.

In a quarterly report to Congress, Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, said the bailout "played a significant role in bringing the system back from the brink of collapse." At the same time, he criticized the Treasury Department's lack of transparency and wondered whether the program wouldn't encourage reckless behavior by financial institutions in the future.

"The American people's belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government," Barofsky told USA Today.

Barosfky noted in his report that the Treasury Department had been "less-than-accurate" in reporting on its initial investments in nine large financial institutions, and numerous critics and oversight panels have pressed the department for more information about how it decided to distribute bailout money. The charge that "Treasury is just too closely aligned with the interests of Wall Street are only reinforced by Treasury's failures of transparency," Barofsky said.

The inspector general also raised concern about moral hazard - the fear that the government's willingness to bail-out banks that ran into trouble because of reckless investments would encourage similar risk-taking in the future.

"We believe that we've had enough progress in helping bring stability to the financial system, bring down the cost of credit, make sure the capital markets are opening up, businesses can borrow again, raise capital, that we can wind down the principal programs that were designed to make sure that large banks had access to capital (and) were stable," Treasury Secretary Timothy Geithner told Reuters news service, referring to the Troubled Asset Relief Program.

As BailoutSleuth has reported, bailout activity has slowed down considerably since the program first opened at the height of last year's financial crisis. At the time, providing liquidity to stable banks was its prime purpose. As the economy has recovered, however, fewer banks are interested in accepting the regulatory restrictions that come with bailout funding.

So far in October, only two banks have received TARP assistance, and none in the last two weeks.

The TARP initiatives targeted for reduction or elimination include the Treasury Department's effort to remove toxic assets from bank balance sheets and to keep consumer credit flowing by helping to securitize loans.

The decision to allow major elements of the bailout program to expire frees up time and money to assist homeowners and small businesses, government officials told the Associated Press.

The Treasury Department, which reports weekly on activities connected to the Troubled Asset Relief Program, has not added any banks to its list of recipients since October 2.

Until this month, it has been rare for a week to go by without new banks joining the bailout program, and there has not been a single two-week period without such activity.

California-based San Joaquin Bank was the latest casualty of the Federal Deposit Insurance Corp.'s active efforts to shut down banks that have failed to maintain adequate capital levels or adhere to other banking regulations.

To protect depositors, the FDIC entered into a purchase and assumption agreement with nearby Citizens Business Bank, of Ontario, Calif., to assume San Joaquin Bank's approximately $631 million in deposits. Citizens Business Bank did not pay the FDIC a premium for the deposits of San Joaquin Bank, the regulator said.

Citizens Business will also absorb $683 million worth of San Joaquin's assets, including all of its local branches.

First Banks Inc., which got $295.4 million through the Troubled Asset Relief Program, and Centrue Financial Corp., which got $32.7 million, said they held on to the dividend payments due Aug. 17 to preserve needed cash.

"This is part of First Bank's capital optimization plan to preserve capital through this next cycle," Peggy Lents, a bank spokeswoman, told the St. Louis Business Journal.

The securities that banks issue to the government in return for TARP aid pay an annual dividend of 5 percent.

Under TARP rules, participating banks can defer accrued dividends for up to six quarters. If six quarters pass without dividend payments, the Treasury has the right to appoint to members to the banks' boards of directors.

The decision not to pay the dividends now suggests that the banks plan to stay with the bailout program for the foreseeable future. Other banks, upset at regulatory restrictions that come with taking government money, have in recent months attempted to leave the program as quickly as possible.

Kenneth D. Lewis, who announced his retirement earlier this month, agreed to return this year's salary to the bank. He still will be able to collect a $53.2 million pension, the New York Times reported. His decision come shortly before Kenneth R. Feinberg, the Treasury official overseeing compensation issues, is due to pass judgment on pay at the largest of the bailed-out banks.

Lewis has been the subject of heavy criticism for his leadership of the bank as it has struggled to extricate itself from last year's economic crisis. Bank of America announced today that it had posted a net loss of $2.2 billion for the third quarter, exceeding analysts' expectations.

Bank of America's purchase of Merrill Lynch is seen by many as Mr. Lewis's biggest mistake. Not only did the bank misread the extent of Merrill's losses, but it now is in hot water with federal regulators and state authorities over the proxy materials offered in advance of a shareholder vote to approve the purchase.

This week, the bank handed over to a congressional committee email records relating the merger. Investigators want to know what bank executives believed about Merrill's financial condition, as well as the legal authority they relied upon in not telling shareholders that they had promised to pay Merrill executives billions of dollars on bonuses once the deal was completed.

Newly released details about the counsel provided by white-shoe law firm Wachtell, Lipton, Rosen & Katz show that the bank was advised not to share information about Merrill's books with shareholders, so long as the firm's losses were comparable to those being suffered by other major investment houses.

Legal experts told the Times that they were shocked by this advice.

"When shareholders are asked to vote, they deserve a fine-tuned picture and are not to be expected to piece together pieces of public knowledge, public awareness and economic awareness to make the right decision," Donald C. Langevort, a professor at Georgetown Law, told the paper.

Wachtell lawyers were also responsible for failing to include information about the Merrill bonuses in the proxy material, the newly released documents show. According to the Times, the firm decided to hide the information from investors "without consulting the bank's management."

Bank Rhode Island Inc. said it had repaid the
$30 million it received under the Troubled Asset Relief Program. It also paid
accrued dividends and redeemed stock warrants it had given the government in
exchange for the assistance.

Commerce National Bank, based in California, also exited the bailout program, paying the Treasury Department $5 million plus
dividends.

A third bank announced a public offering to raise funds to possibly leave the bailout program in the near future. Monarch Financial Holdings Inc., the parent company of Virginia-based Monarch Bank, said it hoped to raise as much as $16.2 million through the sale.

Monarch currently owes the government $14.7 million, as well as accrued dividends.

The exchanges were among emails and other documents the bank turned over to the House Committee on Oversight and Government Reform this week in an effort to answer questions about the controversial deal.

The committee, along with the attorney general of New York and the Securities and Exchange Commission, is investigating whether Bank of America misled shareholders when it neglected to tell them that it had promised to pay Merrill executives as much as $5.8 billion in bonuses once the deal was approved.

A federal judge in New York recently refused to approve a $33 million settlement between the bank and the SEC over the issue, saying that the former had failed to identify the executives responsible for the decision to omit information about the bonuses from the proxy material. In court, the bank claimed that it had acted on its attorneys' advice, but refused to provide details, citing attorney-client privilege.

Rep. Adolphus Towns, chairman of the oversight committee, told the bank earlier this month that it would not be permitted to use such a defense before congress.

The documents released this week do not prove that Bank of America executives knew they were misleading shareholders, the New York Times reported. But they do show that they knew things inside the two companies were worse than many shareholders understood. And they show that executives were nervous that their communications might some day be subpoenaed.

In an email exchange following a particularly dire assessment of Merrill's books, one member of the bank's board of directors was blunt. "Unfortunately it's screw the shareholders!!" Charles K. Gifford wrote Thomas May, another member of the board.

"No trail," May responded, suggesting that they not commit their views of the matter to email.

Gifford replied that he meant to place his words in "the context of a horrible economy!!! Will effect everyone."

The Chicago-based bank, which overextended itself making commercial loans for luxury condominium development projects in Miami, Atlanta, and Las Vegas, among other places, was shut down by the FDIC in September.

The FDIC transferred the bank's deposits to MB Financial Inc. and set up a limited liability company to manage its loan portfolio. A total of eight bidders submitted bids to purchase an ownership interest in that limited-liability company's portfolio of 112 construction loans, more than two-thirds of which are in default or are in foreclosure.

Those loans have an unpaid principal balance of approximately $4.5 billion. The Starwood-led consortium, Northwest Investments LLC, agreed to pay $554 million for its interest in the new public-private partnership.

The Starwood consortium bought its interest at a steep discount to the principal value of the loans. That cushion gives it the opportunity to turn a healthy profit by restructuring or selling loans, even accounting for eventual defaults.

The FDIC retained a 60 percent stake in the venture, which it valued at $831.8 million. It also agreed to provide $1.39 billion in additional financing for the deal.

The Starwood consortium also includes the firms TPG Capital, Perry Capital and WLR LeFrak. The latter was part of a different group of investors who purchased the assets of Florida-based BankUnited earlier this year.

The Home Affordable Modification Program has facilitated 1,711 permanent mortgage modifications, Elizabeth Warren, chairman of the Congressional Oversight Panel, said in her report. In addition, another 362,348 additional borrowers have begun a trial stage in which they can qualify for long-term mortgage relief by making consistent payments of a reduced amount for three months.

All told, Treasury expects to spend $42.5 billion on the program, which it estimates will allow it to support as many as 2.6 million mortgage modifications. Expenditures could rapidly increase, however, if the economy fails to recover and potential foreclosures increase.

Warren's report also noted that the HAMP program could face additional problems because it was set up to deal with homeowners burdened by subprime mortgages. The main problem facing the housing market now, she said, is unemployment, which is making it difficult for people with traditional mortgages to make their payments. Many of those mortgages, however, do not meet the qualification requirements set out for participation in the program.

"It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," Warren said in her report.

In addition, Warren said that a lack of transparency was making it difficult for her panel to reach confident conclusions about the overall utility of the program. She recommended that the Treasury Department release its net present value models, which it uses to assess home values and qualify applicants.

Florida-based 1st United Bancorp, which last month raised $57.5 million in a public offering, said it had raised an addition $10.5 million from underwriters exercising their over-allotment options --- the exact amount it owes the Treasury Department including dividends.

The bank said previously it would use the bulk of the additional capital to expand its operations by purchasing other regional banks.

CenterState Bancorp, the first bank in Florida to receive assistance under the Troubled Asset Relief Program, said it had paid $28 million to redeem shares held by the Treasury and pay off all accrued dividends.

"The perception of TARP got to be so negative that it wasn't worth the hassle," Jim Antal, the bank's chief executive officer, told the Orlando Business Journal.

Elizabeth Warren told the Reuters news service that she is closely monitoring whether Kenneth Feinberg, who heads the Obama' administration's efforts to set pay restrictions on bailed-out companies, meets Congress's standards for transparency and openness.

"If, as he says, he wants the rulings to serve as a model, there needs to be full accountability for his decisions and a clear understanding of the metrics and goals he's using," Warren told Reuters.

In her role as chairman of the Congressional Oversight Panel overseeing the Troubled Asset Relief Program, Warren has maintained a drumbeat of criticism over what she has said is the Treasury Department's failure to account for the hundreds of billions of dollars spent in the bailout effort.

Feinberg has been hard at work in recent months approving and finalizing the pay packages of top executives as the largest firms to receive bailout assistance. Warren told the news service she was concerned that Feinberg would give in to demands that he not publicize the details of the salary arrangements.

"I think that when companies are asking for taxpayer help, the expectations of privacy change," she said. "They no longer operate in a world in which their pay decisions are relevant only to the shareholders of the company."

GrandSouth is theholding company for GrandSouth Bank, based in Greenville,S.C. Ithad $375.1 million inassets at the end of June, $296.8 million in deposits and $32.8 million in shareholders' equity.

We're watching GrandSouth because on Jan. 9 it got$9 million from the Treasury Department through the Troubled Asset Relief Program. In exchange for the money,it issued preferred stock and warrants to the government. As of May 31, it has paid $171,700 in dividends to the Treasury.

GrandSouth'sfiling explains:

"We are proposing the amendment and reclassification because our Board of Directors has concluded, after careful consideration, that the direct and indirect costs associated with being a reporting company with the Securities and Exchange Commission ('SEC') outweigh any of the advantages. OUR BOARD RECOMMENDS THAT YOU VOTE 'FOR' THE AMENDMENT TO OUR ARTICLES OF INCORPORATION. THE PROPOSED AMENDMENT WILL NOT BE ADOPTED UNLESS IT IS APPROVED." [Emphasis in the original.]

If GrandSouth's shareholders approve the proposal, their new status will depend on how much stock they own. Those with 2,001 or more shares of common stock on the effective date "will continue to own the same number of shares of common stock." But shareholders who own less than 2,001 shares of common stock will be given "a number of shares of Series A Preferred Stock equal to the same number of shares of common stock [they] held before the reclassification."

The directors and officers - who've said they will vote for the amendment - own nearly a third of GrandSouth's outstanding shares; if they exercise all of their vested options, they will own just under 37 percent. However, in order for the amendment to pass, at least two-thirds of the owners of the outstanding common stock must approve the proposal.

The company states that shareholders who oppose the proposal have rights under South Carolina law, but it hasn't determined a fair market value for the common stock, nor has it set a date yet for the special meeting.

By reducing the number of shareholders ofcommon stock toless than 300, GrandSouth can suspend its public reporting obligations under the Securities Exchange Act. It expects "significant cost savings" by not having to file regular reports with the SEC or meet the requirements under the Sarbanes-Oxley Act (SOX). GrandSouth acknowledged that the move will reduce the amount of information about the company that is readily available to the public. But it said the company plans to send shareholders an annual report, albeit one that will be "somewhat less detailed than the report we have historically sent."

Actually, GrandSouth has been considering going private for a couple of years. The company went public in 2000, but it realized after Sarbanes-Oxley was enacted in 2002that it would be expensive to meet the new requirements the legislationimposed on executives,directors and auditors of publicly heldcompanies.

According to the filing, discussions about going private picked up in the fall of 2007 and continued throughout 2008.

Concerning last year's economic upheaval,the company's filing said, "During the third and fourth quarters of 2008, the now familiar crisis hit the financial industry with full force. Although the effect on the Company was minor at first, by October 2008, it was apparent to the officers of the Company that the desirability of raising additional capital was a much higher priority than achieving the cost savings of going private."

After the Treasury Department began providing aidto banks and other financial companies through TARP'sCapital Purchase Program, "the officers of the Company believed that it would be in the best interest of the Company to focus on positioning it to participate in the Capital Purchase Program and on increasing the Company's capital. Accordingly, going private was put on hold to be reconsidered, if possible, after the capital situation had been resolved." The company's shareholders ultimately approved its participation in the CPP.

After GrandSouth got the Treasury's infusion of capital, its officers "consulted counsel to determine whether it would be possible for the Company to go private while preferred stock was held by the Department of the Treasury. It was determined that the Company could go private, but that it would be appropriate to request that the Department of the Treasury concur that the Company's agreement with the Department of the Treasury would not preclude any net reduction of capital of $200,000 or less as a result of payments to any dissenting shareholders in connection with the transaction." It said that it "received the Department of Treasury's consent to such a transaction in July, 2009."

AllianceBernstein LP, Blackrock Inc., and Wellington Management Co. LLP raised a total of $194 million to participate in the Public-Private Investment Program. Under the terms of the deal, Treasury will match their contributions and provide additional debt financing, bringing the total investment to as much as $7.4 billion.

"The PPIP continues to grow," Herb Allison, assistant Treasury secretary for financial stability, said in a statement. "Private capital is being drawn into the market for legacy securities, and taxpayers are being given a chance to share in the profits."

Last week, Treasury announced that two other firms, Invesco Ltd. and TCW Group Inc. had each invested $1.1 billion in the program and would likewise receive matching funds and financing.

Initially intended to spur liquidity in the market for toxic assets, the PPIP program has come under fire as demand for the securities has improved since last year's the financial meltdown. Some critics have questioned whether the assistance amounts to a giveaway to the financial industry.

Private equity firms and pension funds have certainly shown an improved interest in the program in recent weeks. The state of Connecticut has invested $100 million in Invesco's participation, which the Wall Street Journal reported has boasted of potential returns of 25 percent. Connecticut has placed an additional $50 million with AllianceBernstein.

The California-based companyowns Sonoma Valley Bank, which bills itself as that region's "only local community-owned bank.''It had $342.5 million in assets at the end of June.

On Feb. 20, Sonoma Valley Bancorpgot$8.7 million throughtheTreasury Department'sTroubled Asset Relief Program,in exchange for issuing preferred shares and warrants. As of May 31, it had paiddividends of $111,400 to the Treasury.

While these are relatively small sums of money, we couldn't help but notice that some of the bank's actions fall on an interesting timeline.

First, this filing dated Feb. 19 said that at the company's regularly scheduled board meeting the day before, the company had declared a dividend of 30 cents a share,to be paid in mid-March. At the time, Chairman Bob Nicholas "said the company's growth and earnings record made the declaration possible."

The next day, the bank took government money throughTARP's Capital Purchase Program.

Although Sonoma Valley Bancorp also paid dividends of 30 cents a share in August2008, February 2008, and August 2007, thistime aroundthecompany's directors madea different call.

"We realize that for many shareholders this news may come as a disappointment; however we strongly believe the decision is in the best interest of all shareholders," the letter to investors said.

Nicholas explained in the letter that there were "three key considerations" which led the Board to suspend the dividend:

1. Regulators' pressure on banks to shore up their capital bases. "In practical terms, with virtually no sensible option to raise additional capital at the present time, the only viable way to do this is to build up our retained earnings."
2. The fact that the money to repay the TARP money"will likely come from retained earnings."
3. That while challenging times can present opportunities for growth, those will happen "only if we reserve the capital strength to take advantage of them."Nicholas then concludes by saying, "The bottom line is that continuing payments of cash dividends to shareholders greatly reduces or may even eliminate our ability to accomplish any of these key objectives."

Sonoma Valley Bancorp made no mention ofthe January 2009 guidelines that the California Department of Financial Institutions issued to govern circumstances under which banks that got TARP moneycan pay dividends to shareholders.

Under those guidelines, there arecircumstances in which a bank must seek permission from the DFI's commissionerto declare a dividend to shareholders. And there are criteria that must be met in those cases in order for the commissioner to approve the payout.

Neil M. Barofsky, who heads up oversight of the bailout program, said Bush administration officials claimed that the banks were "healthy" when in fact there was significant understanding within the administration that some of them were in serious trouble.

"Contemporaneous reports and official's statements to SIGTARP during this audit indicate that there were concerns about the health of several of the nine institutions at that time and, as detailed in this report, that their overall selection was far more a result of the officials' belief in their importance to a system that was viewed as being vulnerable to collapse that concerns about their individual health and viability," Barofsky wrote.

The nine banks in question received $125 billion in taxpayer capital days after the bailout program was formally announced. They included Bank of America Inc., Citigroup Inc., Wells Fargo & Co., J.P. Morgan Chase, Goldman Sachs, Morgan Stanley, State Street Corp., and Bank of New York Mellon.

The banks issued preferred stock and warrants to the Treasury in exchange for the aid.

The same day the investments were announced, Treasury officials repeatedly referred to strength of the recipient banks, repeatedly emphasizing the word "healthy" and casting the decision to take the money as almost a sacrifice on behalf of the country, according to Barofsky.

"These are healthy institutions, and they have taken this step for the good of the U.S. economy," said former Treasury Secretary Hank Paulsen.

"These healthy institutions are taking these steps to strengthen their own positions and to enhance the overall performance of the U.S. economy," said the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. in a joint statement.

Michigan's banking regulators shut down Warren Bank and appointed the FDIC as receiver. The FDIC arranged for Huntington National Bank, of Columbus, Ohio, to take over the failed bank's six branches and its $501 million in deposits.

Huntington National paid a premium of 0.27 percent for the deposits. It also agreed to buy $83 million of Warren Bank's $538 million in assets. The FDIC said it would retain the remaining assets and dispose of them later

Minnesota regulators seized Jennings State Bank and named the FDIC as receiver. It struck a deal with Central Bank, in Stillwater, Minn., to take over the closed bank's two branches, its $52.4 million in deposits and its $56.3 million in assets.

Central Bank and the FDIC entered into a loss-sharing deal on $37.7 million of those assets, meaning that the FDIC will absorb a large portion of any losses on the loans and investments in that portfolio.

The federal Office of the Comptroller of the Currency shut down Southern Colorado National Bank. The FDIC, which was appointed as receiver, arranged for Legacy Bank in Wiley, Colo., to buy Southern Colorado National's two branches, $31.9 million in deposits and $39.5 million in assets.

The New York Times reported that Andrew M. Cuomo, the state's attorney general, may file suit against Lewis as early as next week for having failed to fully disclose the details of the bank's purchase late last year of Merrill Lynch & Co.

Lewis resigned in the face of growing concern over his management of the issue, which is now the subject of investigations by multiple agencies at the state and federal levels.

Cuomo and others are examining why Bank of America did not tell its shareholders that it had approved billions of dollars in bonus payments to Merrill executives.

What at first appeared to be a minor regulatory matter has spun nearly out of Bank of America's control. A federal judge in New York earlier this month rejected a $33 million settlement with the Securities and Exchange Commission over the matter, and a congressional panel recently warned the company that it could not rely on attorney-client privilege when giving testimony on Capitol Hill.

In court proceedings related to the SEC settlement, the bank claimed that its lawyers were to blame for the faulty proxy statement distributed to shareholders before their vote on the Merrill deal. But it also claimed the privilege in defending itself from having to detail the interactions between the lawyers and senior bank executives.

KeyCorp, the Ohio-based holding company for KeyBank, got $2.5 billionfrom the Treasury Department in November through the Troubled Asset Relief Program, in exchange for preferred stock and warrants.

According to its website, the company has approximately $98 billion in assets, 993 full-service bank branches in 14 states, and 1,485 ATMs.

When bank regulators conducted their stress test last spring, KeyCorp was the 19th largest bank they tested.The results led regulators to conclude that KeyCorp needed to raise an additional $1.8 billion in capital so that it would have a buffer if the nation experienced another steep economic decline.

At the Sept. 17 meeting of the company's board of directors, the compensation committee gave significant pay raises to Chairman Henry L. Meyer III, who also is president and chief executive; Vice Chair Beth E. Mooney; Vice ChairThomas C. Stevens; and Chief Financial OfficerJeffrey B. Weeden.

The board put the lion's share of the increased compensation in the form of common stock.The stock will be fully vested, but it will also be restricted - which means that none of the executives can sell or transfer the shares until KeyCorp has repaidall of the public money it receivedunder TARP's Capital Purchase Program.

It's not clear when that will occur. Although KeyCorp has yet to return any of the money it borrowed, as of May 31, it had repaid $62.8 million in dividends to the Treasury.

According to the filing: "Beginning with the October 2, 2009 pay, on an annualized basis, Mr. Meyer's base salary will increase by $2,313,000 with 100% of this increased amount to be paid in common stock of the corporation."Elsewhere in the filing it confirms that "...by year-end 2009, Mr. Meyer will have received a base salary of $1.02 million in cash and $2.6 million in KeyCorp common stock that will not become transferable until after Key repays the CPP TARP investment."

The company notes that Meyer's 2009 total compensation package "is approximately 50 percent of Meyer's pre-TARP total compensation opportunity."

KeyCorp'sother top executives also are faring well.Mooney will see a $1 million increase to her base salary (90 percent to be paid in common stock);Stevens will get a $550,000 increase (90 percent of which will be paid in common stock),andWeeden will get a $650,000 increase to his base salary (again, 90 percentof which will be paid in common stock).

Mississippi-based Guaranty Capital Corp. was approved for $14 million in assistance, for which it gave the Treasury an equal value of subordinated debentures.

Steele Street Bank Corp., based in Colorado, received the second-largest distribution at $11 million in exchange for subordinated debentures and exercised warrants.

Other banks receiving bailout funding include Virginia-based Heritage Bankshares Inc. ($10.1 million), Florida-based GulfSouth Private Bank ($7.5 million), Georgia-based Mountain Valley Bancshares ($3.3 million), and Mississippi-based Grand Financial Corp. ($2.4 million.)