Members of Congress are starting to question whether banks that got billions in government bailout money will use some of it to pay year-end bonuses to executives and other employees.
BailoutSleuth decided to take a look at compensation levels for the top officers at those banks, to see how much they were paid in recent years and whether the companies have made any adjustments in response to plunging profits or eroding asset values.
We'll start with four banks that got, or will get, $25 billion each by selling preferred stock and warrants to the Treasury Department. The companies on that list are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp.
Although Bank of America is getting $15 billion in direct government investment, it is in the process of buying Merrill Lynch Inc., which is getting an additional $10 billion.
Under the compensation rules in the Treasury Department's $700 billion rescue program, companies that receive government money can take tax deductions on only the first $500,000 of each executive's pay. That figure includes bonuses and stock awards.
Our survey of executive compensation at the banks participating most heavily in the program shows that pay levels for every one of their top officers far exceed the government's deductibility threshold. In fact, the lowest full-year compensation package we found at the four banks mentioned above was $3.99 million, for one of Wells Fargo's senior executive vice presidents.
Here is an overview of executive pay levels at the four companies that received the most government money (click on charts to view larger versions in a separate window):
Richard M. Kovacevich, chairman of Wells Fargo, received $22.9 million in total compensation in 2007, down from $29.8 million a year earlier. His package included a salary of $995,000 and non-stock incentive compensation of $5.7 million.
Kovacevich got a pair of stock option awards that the company valued at $11.2 million. Wells Fargo's share price has dipped below the exercise price for the options, meaning that they currently could not be exercised at a profit.
The next five highest-paid executives at Wells Fargo got a combined $34.5 million. Their individual compensation ranged from $3.99 million for Carrie L. Tolstedt, the senior executive vice president of community banking, to $12.6 million for President John G. Stumpf. However, more than a third of the total compensation for that group of executives was stock options that are currently out of the money.
Wells Fargo's stock has fared better in the downturn than the stock of most other banking companies. Its shares fell 12.1 percent in 2007, but have made up much of the lost ground this year, gaining 9.7 percent through Wednesday.
The bank had profits of $3.75 billion for the first half of this year. That compares with $8.06 billion for all of 2007 and $8.42 billion for all of 2006.
Wells Fargo agreed last month to buy ailing Wachovia Corp. for $15.1 billion. The Federal Deposit Insurance Corp. had initially enlisted Citigroup to buy the bank, but Wells Fargo made a higher offer.
Charles Prince, Citigroup Inc.'s former chairman and chief executive, got $15.1 million in total compensation in 2007, barely half of the $29.1 million that he received in 2006. Prince was ousted last November as the company's bad investments in mortgage-backed securities took a heavy toll on its earnings and balance sheet.
Prince left Citigroup with stock and other benefits then valued at more than $95 million.
The next five highest-paid Citigroup executives split $48.7 million in 2007, with individual amounts ranging from $7.6 million to $19.4 million. The cash portion of their salary and bonuses ranged from $1.51 million to $14.5 million.
Two members of that group - Sallie Krawcheck, head of Citigroup's wealth-management business, and Michael Klein, head of its global banking business -- left the company after Vikram Pandit replaced Prince as chief executive.
Krawcheck had compensation of $7.14 million in 2007, and Klein received $7.86 million.
Citigroup's stock fell 44.8 percent in 2007, and is down an additional 54.3 percent his year.
Pandit got restricted stock and options valued at $48 million as a sign-on bonus. However, the decline in Citigroup's share price has slashed the value of the stock, and the options currently could not be exercised at a profit.
An earlier deal with Citigroup proved far more lucrative for Pandit. The bank paid $800 million in April 2007 for Old Lane LP, a hedge fund that he founded the previous year with partner John Havens, now head of Citigroup's investment banking operations. Pandit's share of the proceeds was $162.5 million.
In May of this year, Citigroup allowed investors to withdraw their money from the $4 billion-plus fund, and in June it shut down the fund and rolled its remaining assets into the parent company.
Citigroup posted a loss of $7.6 billion for the first half of 2008. That compares with earnings of $3.62 billion for all of 2007, and $21.5 billion for all of 2006.
James S. Dimon, chairman and chief executive of JPMorgan Chase, collected $27.8 million in total compensation in 2007. That package included a salary of $1 million and a bonus of $14.5 million. Dimon had total compensation of $39 million in 2006.
Dimon's compensation last year included a grant of 269,431 shares of stock that JPMorgan Chase valued at nearly $10.7 million in March. The decline in the company's stock since then has reduced the market value of the shares by $1.1 million.
The options issued to Dimon and other executives in 2007 have at an exercise price of $46.79 a share, according to the company's proxy filing. With the decline in the company's stock, none of the options could be exercised at a profit today.
Two other JPMorgan executives made more than $20 million each in 2007. William T. Winters, co-head of the company's investment banking unit, had total compensation of $21.2 million. Steven D. Black, the other co-head, got $20.9 million.
The remaining two officers covered by the company's proxy filing had
combined compensation of $25 million. Although stock awards accounted for much of the pay listed for Winters, Black and the other two executives. each received between $4.25 million and $9.2 million in salary and bonus.
JPMorgan Chase's stock fell 6.9 percent in 2007, and is off 15.2 percent so far this year. The bank's profits also have been declining. It posted net income of $4.29 billion for the first half of 2008. That compares with $14.4 billion for all of 2007 and $15.4 billion for 2006.
JPMorgan Chase agreed in September to buy most of the assets of Washington Mutual. The deal for that failing, Seattle-based bank was facilitated by the FDIC.
Kenneth D. Lewis, Bank of America's chairman and chief executive, collected $24.8 million in total compensation in 2007, down from $27.9 million the previous year. His pay package for 2007 included $1.5 million in salary, a $4.25 million cash bonus,
restricted stock valued at $11.1 million and stock options valued at $4.57 million.
Bank of America's stock fell 18.8 percent in 2007 and has fallen a further 42.8 percent this year.
Bank of America said in its proxy filing that Lewis' $11.1 million stock award was granted in early 2007 and was based on performance for prior years, including 2006. Because of the drop in the company's share price, the award has a current value of around $4.6 million.
The next five highest-paid Bank of America executives got $55.4 million in total compensation, with the individual amounts ranging from $9.33 million to $13.3 million. Those same people had $53.4 million in compensation in 2006.
The option awards granted to Bank of America's top executives in 2007 ranged in value from $2.14 million to $4.57 million per person. Because of the company's slumping stock price, none could currently be exercised at a profit.
Bank of America reported profits of $4.62 billion for the first half of 2008. That compares to $14.9 billion for all of 2007, and $21.2 billion for 2006.
THE WAXMAN LETTER
Henry A. Waxman, a California Democrat who heads the House Committee on Oversight and Reform, sent letters this week to the chief executives of nine banks slated to receive $125 million in aid from the Treasury Department.
He requested information on their compensation and bonus plans, noting that public filings show that those companies spent or reserved $108 billion for those purposes in the first nine months of 2008 - nearly the same amount as last year.
Waxman noted that some news reports suggesting that year-end bonuses would be bolstered by the infusion of federal money.
"While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected in the banks through payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record,'' he wrote.