Seventeen financial firms made ill-advised payments to executives totaling $1.6 billion while taxpayers were bailing them out, U.S. pay czar Kenneth Feinberg said on Friday.
On the shame list were a range of big-name firms that benefited from the government's rescue of the financial system, including insurer AIG and Wall Street titans Goldman Sachs, Citigroup and Bank of America.
Feinberg, whose review covered late 2008 and early 2009 before government pay restrictions were put in place, said he was urging the firms to voluntarily adopt policies that would let them alter their compensation arrangements during any future crises, but had not yet formally heard back from them.
While he found the pay to be out of line with the restrictions later put in place, he has no power to reach back to force the companies to return the money.
Feinberg, the Obama administration's special master for compensation, said the pay showed bad judgment, but did not go against the public interest. If he had made that finding, he would have had to try to negotiate a reimbursement.
They weren't illegal, they violated no statute, they violated no regulation, he said at a news conference.
Public anger was intense when it became known that Wall Street firms were continuing to make big bonus payments at the end of 2008, when fear was high that the country could slip into a new depression. Feinberg's report sparked fresh calls on Capitol Hill for bailed out firms to disgorge the money.
U.S. Representative Peter Welch, a Vermont Democrat, said he was circulating a letter among his colleagues to send to the six firms out of the 17 that have yet to repay bailouts.
Welch is urging them to halt all executive bonuses until taxpayers are fully repaid taxpayers, and is calling on them to return the ill-advised pay from 2008-2009.
Why is that Wall Street increases bonuses to executives while eliminating lending to small businesses, Welch said in a draft of the letter to be sent on Monday. Why is it that, when it comes to Wall Street compensation, enough is never enough?
In 2007, before the bailouts, Goldman Sachs and JPMorgan Chase & Co broke the $20 billion mark in paying their employees, while Morgan Stanley paid $16.5 billion.
Three years later, the firms are all headed toward similar totals for 2010. Goldman is expected to pay $18.6 billion, while Morgan Stanley is projected to pay $16.6 billion and JPMorgan is on pace to pay $29.8 billion.
Feinberg did not divulge any details on the size or justification for the payments his review found to be excessive. He did note that some payments to some individual executives totaled as much as $10 million.
He said he wanted to avoid increased litigation against financial firms, which he argued might have ensued if his office had found the pay violated the public interest.
In his final act before he moves on to oversee payments from a fund that oil company BP Plc set up to compensate victims of the Gulf of Mexico oil spill, Feinberg proposed that financial firms adopt policies to let them restructure, reduce or cancel bonuses and other special payments to executives in future crises.
This authority would supersede any rights and entitlements executives have in normal circumstances, Feinberg said.
Feinberg investigated pay practices at 419 banks that got government bailout money during the financial crisis but before pay restrictions came into force in early 2009.
Some $1.7 billion of cash bonuses, retention awards, stock grants and other payments that later came under restriction were made between late 2008 and February 2009, although the 17 firms accounted for almost all of that.
The firms named are AIG, Citigroup, CIT Group, M&T Bank Corp, Regions Financial Corp, Suntrust Banks, American Express, Bank of America, Bank of New York Mellon, Boston Private Financial Holdings, Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, PNC, US Bancorp and Wells Fargo.
Listing the 17 banks essentially amounts to a name and shame approach, urging them to voluntarily ensure they tighten up on pay practices during crises. Feinberg said he was hopeful that banks would adopt the approach.
Most banks refused immediate comment, but a Morgan Stanley spokeswoman, Jeanmarie McFadden, said the bank support(s) the efforts of the special master on compensation reform and we are reviewing this proposal.
(Reporting by Glenn Somerville and Pedro da Costa; Editing by Paul Simao).