Bailed-out bankers to get options windfall: study

September 2, 2009

Wed Sep 2, 2009 11:14am EDT
By Steve Eder

NEW YORK (Reuters) – As shares of bailed-out banks bottomed out earlier this year, stock options were awarded to their top executives, setting them up for millions of dollars in profit as prices rebounded, according to a report released on Wednesday.

The top five executives at 10 financial institutions that took some of the biggest taxpayer bailouts have seen a combined increase in the value of their stock options of nearly $90 million, the report by the Washington-based Institute for Policy Studies said.

“Not only are these executives not hurting very much from the crisis, but they might get big windfalls because of the surge in the value of some of their shares,” said Sarah Anderson, lead author of the report, “America’s Bailout Barons,” the 16th in an annual series on executive excess.

The report — which highlights executive compensation at such firms as Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Bank of America Corp. (BAC) and Citigroup Inc. (C) — comes at a time when Wall Street is facing criticism for failing to scale back outsized bonuses after borrowing billions from taxpayers amid last year’s financial crisis. Goldman, JPMorgan and Morgan Stanley have paid back the money they borrowed, but Bank of America and Citigroup are still in the U.S. Treasury’s program.

It’s also the latest in a string of studies showing that despite tough talk by politicians, little has been done by regulators to rein in the bonus culture that many believe contributed to the near-collapse of the financial sector.

The report includes eight pages of legislative proposals to address executive pay, but concludes that officials have “not moved forward into law or regulation any measure that would actually deflate the executive pay bubble that has expanded so hugely over the last three decades.”

“We see these little flurries of activities in Congress, where it looked like it was going to happen,” Anderson said. “Then they would just peter out.”

The report found that while executives continued to rake in tens of millions of dollars in compensation, 160,000 employees were laid off at the top 20 financial industry firms that received bailouts.

The CEOs of those 20 companies were paid, on average, 85 times more than the regulators who direct the Securities and Exchange Commission and the Federal Deposit Insurance Corp, according to the report.

(Reporting by Steve Eder; editing by John Wallace)


U.S. clears 10 big banks to repay bailout funds

June 9, 2009

Tue Jun 9, 2009 6:09pm EDT
By Glenn Somerville

WASHINGTON (Reuters) – JPMorgan (JPM), Goldman Sachs (GS) and eight other top U.S. banks won clearance on Tuesday to repay $68 billion in taxpayer money given to them during the credit crisis, a step that may help them escape government curbs on executive pay.

Many banks had chafed at restrictions on pay that accompanied the capital injections. The U.S. Treasury Department’s announcement that some will be permitted to repay funds from the Troubled Asset Relief Program, or TARP, begins to separate the stronger banks from weaker ones as the financial sector heals.

Treasury didn’t name the banks, but all quickly stepped forward to say they were cleared to return money the government had pumped into them to try to ensure the banking system was well capitalized

Stock prices gained initially after the Treasury announcement but later shed most of the gains on concern the money could be better used for lending to boost the economy rather than paying it back to Treasury.

“If they were more concerned about the public, they would keep the cash and start loaning out money,” said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.

Treasury Secretary Timothy Geithner told reporters the repayments were an encouraging sign of financial repair but said the United States and other key Group of Eight economies had to stay focused on instituting measures to boost recovery.

MUST KEEP LENDING

Earlier this year U.S. regulators put the 19 largest U.S. banks through “stress tests” to determine how much capital they might need to withstand a worsening recession. Ten of those banks were told to raise more capital, and regulators waited for their plans to do so before approving any bailout repayments.

As a condition of being allowed to repay, banks had to show they could raise money on their own from the private sector both by selling stock and by issuing debt without the help of Federal Deposit Insurance Corp guarantees. The Federal Reserve also had to agree that their capital levels were adequate to support continued lending.

American Express Co (AXP), Bank of New York Mellon Corp (BK), BB&T Corp (BBT), Capital One Financial Corp (COF), Goldman Sachs Group Inc, JPMorgan Chase & Co, Morgan Stanley (MS), Northern Trust Corp (NTRS), State Street Corp (STT) and U.S. Bancorp (USB) all said they had won approval to repay the bailout funds.

In contrast, neither Bank of America Corp (BAC) or Citigroup Inc (C), which each took $45 billion from the government, received a green light to pay back bailout money.

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How will U.S. asset cleanup plan work?

March 23, 2009

Mon Mar 23, 2009 4:04pm EDT

WASHINGTON, March 23 (Reuters) – U.S. Treasury Secretary Timothy Geithner on Tuesday unveiled his long-awaited plan to cleanse toxic assets from bank balance sheets.

Here are some questions and answers about the plan.

Q: What is the problem the Treasury is trying to solve?

A: The bursting of the U.S. housing bubble caused mortgage failures to skyrocket and triggered massive losses for banks on complex mortgage-related securities. The excessive discounts now embedded on these hard-to-trade assets is weighing down bank balance sheets, choking off lending and worsening an already deep recession.

Q: What is the objective of the Treasury’s plan?

A: The plan aims to bring in private investors to help jump-start the markets for these assets. By providing attractive government financing, the Treasury hopes private investment firms can afford to pay prices for the assets at levels at which banks are willing to sell. With these assets off their books, banks would have capacity to resume lending again, and will be better able to attract private capital. Fears over their potential losses would be greatly reduced.

Q. How much will this cost the government?

A: The Treasury will initially contribute $75 billion to $100 billion from the $700 billion financial bailout fund approved by Congress last fall. It will be able to stretch these funds by combining them with private capital and leveraging them with loans from the Federal Reserve and the Federal Deposit Insurance Corp. Losses for taxpayers could be much larger than the amount the Treasury is using to seed the program, since the FDIC and Fed are extending loans. The Treasury estimates that $500 billion of assets can be bought through the plan, and this could grow to up to $1 trillion. Geithner said he is not ready to decide whether to ask Congress for more bailout money.

Q. How is the plan structured?

A. There are three basic programs. The largest one will enable investors, partnered with the government, to buy whole loans from banks with FDIC financing in an auction process run by the banking regulator. The second would expand a securities loan program run by the Fed to enable firms holding certain mortgage- and asset-backed securities to pledge them as collateral for new loans to invest in these markets. In the third part, the Treasury would hire at least five asset managers to raise capital to buy distressed mortgage- and asset-backed securities. The Treasury would then match the private capital dollar-for-dollar and provide additional debt financing to boost buying power. The funds would compete in the open market to buy legacy securities.

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Obama sets aside $75 billion to slow foreclosures

February 18, 2009

Program would seek to bring mortgage payments down to 31% of income

By Ronald D. Orol, MarketWatch
Last update: 2:38 p.m. EST Feb. 18, 2009

WASHINGTON (MarketWatch) — The White House unveiled a plan Wednesday to help 9 million “at risk” homeowners modify their mortgages, committing $75 billion of taxpayer money to back the initiative.

The plan contains two separate programs. One program is aimed at 4 million to 5 million homeowners struggling with loans owned or guaranteed by Fannie Mae (FNM) or Freddie Mac (FRE) to help them refinance their mortgages through the two institutions.

The Obama mortgage plan

Below is a list of key elements of the plan outlined Wednesday by President Obama that aims to aid as many as 9 million households in fending off foreclosures:

* Allows 4 million–5 million homeowners to refinance via government-sponsored mortgage giants Fannie Mae and Freddie Mac.
* Establishes $75 billion fund to reduce homeowners’ monthly payments.
* Develops uniform rules for loan modifications across the mortgage industry.
* Bolsters Fannie and Freddie by buying more of their shares.
* Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities — a $50 billion increase.

A separate program would potentially help 3 million to 4 million additional homeowners by allowing them to modify their mortgages to lower monthly interest rates through any participating lender. Under this plan, the lender would voluntarily lower the interest rate, and the government would provide subsidies to the lender.

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in subprime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments,” President Barack Obama said.

Homeowners that have Fannie Mae or Freddie Mac loans, who are having a difficult time refinancing and owe more than 80% of the value of their homes, would be eligible to refinance with this program. Even if homeowners with Fannie or Freddie loans have negative equity on their mortgages, they can qualify for this refinancing program. The program would only help homeowners occupying the property, not individuals who own property as investors.

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Obama signs $787 billion stimulus into law

February 17, 2009

Ceremony setting highlights investment in ‘green’ technology

By Robert Schroeder, MarketWatch
3:39 p.m. EST Feb. 17, 2009

WASHINGTON (MarketWatch) — President Barack Obama signed the sprawling $787 billion economic stimulus package into law on Tuesday, saying it will help the struggling U.S. economy but warning that the recovery process will be challenging.

“Today does not mark the end of our economic troubles,” Obama said before signing the bill in Denver, Colo. “Nor does it constitute all of what we must do to turn our economy around.”

But, said Obama “it does mark the beginning of the end” of what the U.S. needs to do to create jobs, provide relief to families and pave the way for long-term growth.

Obama signed the bill on Tuesday afternoon in a ceremony in Denver after touring a solar panel installation project at the Denver Museum of Nature and Science. Among other things, the bill funnels money to alternative energy projects, provides tax cuts for individuals and businesses and gives aid to states.

Congress approved the bill on Feb. 13. Democrats voted overwhelmingly in the House and Senate to back the bill, but no Republicans voted for it in the House and only three voted for it in the Senate.

Obama has repeatedly described the stimulus as the first in a multi-part strategy to hasten an economic recovery. Read a summary of the stimulus.

On Wednesday, the administration plans to announce details about a $50 billion program to modify mortgages for troubled homeowners. The Treasury Department plans to use $50 billion of the remaining $350 billion in a bank-bailout fund for a program to help troubled homeowners avoid defaulting on their loans by subsidizing mortgage payments.

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Bloggers Will Catch the Next Madoff

February 13, 2009

by Mick Weinstein
Posted on Friday, February 13, 2009, 12:00AM

Independent investigator Harry Markopolos knew something fishy was going on with Bernie Madoff years before the fund manager confessed to his massive Ponzi scheme. But Markopolos couldn’t get the SEC or ‘The Wall Street Journal’ to properly investigate the matter, so his information failed to reach the public — while dozens of new and existing victims poured their life savings into Madoff’s black hole.

Ray Pellecchia, vice president of Corporate Communications at NYSE Euronext, asked an interesting question on his blog last week: “What would have happened if Mr. Markopolos had blogged his analysis? That is, what if he had posted the entire piece on a blog, under his name or a pseudonym?… I believe that blogging’s fast, viral distribution would have been highly effective in this case, and brought down the alleged Ponzi scheme in a hurry. I wonder if future whistle blowers will use blogs if they believe their information is not getting through on official channels.”

Ray made a great point, and I think the answer is clear: Blogs, microblogs (such as Twitter), and other social media tools are simultaneously pulling down communication barriers and establishing quality/truth filters in ways that will enable far more effective early recognition of financial fraud than the limited channels we previously relied upon.

We may — repeat, MAY — have a case in point already.

Financial analyst Alex Dalmady started asking pointed questions about Houston-based Stanford Financial and its affiliate Stanford International Bank of Antigua — which claims over $6 billion in depositors’ assets — when a friend of his asked him to review his portfolio, heavily weighted in remarkably high-yield Stanford CDs.

As Dalmady dug deeper, he found lots of problems with Stanford’s products, documented them in a report called “Duck Tales” (if it looks like a duck, walks like a duck, and quacks like a duck…), then uploaded that report to the ‘net for public consumption. Dalmady published the report in a Venezuelan econo-mag, but noticed that his work on Stanford only “really exploded once it hit the blogs. Miguel Octavio’s The Devil’s Excrement [at Salon.com] took up the story on Monday the 9th, as did Caracas Gringo.”

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FDIC May Run ‘Bad Bank’ in Plan to Purge Toxic Assets

January 28, 2009

By Robert Schmidt and Alison Vekshin

Jan. 28 (Bloomberg) — The Obama administration is moving closer to setting up a so-called bad bank in its effort to break the back of the credit crisis and may use the Federal Deposit Insurance Corp. to manage it, two people familiar with the matter said.

U.S. stocks gained, extending a global rally, on optimism the bad-bank plan will help shore up the economy. The Standard & Poor’s 500 Stock Index (SPX) rose 3.1 percent to 871.70 at 2:40 p.m. in New York. Bank of America Corp. (BAC), down 54 percent this year before today, rose 84 cents, or 13 percent, to $7.34. Citigroup Inc. (C), which had fallen 47 percent this year, climbed 17 percent.

FDIC Chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks’ balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama’s team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.

“It doesn’t make sense to give the authority to anybody else but the FDIC,” said John Douglas, a former general counsel at the agency who now is a partner in Atlanta at the law firm Paul, Hastings, Janofsky & Walker. “That’s what the FDIC does, it takes bad assets out of banks and manages and sells them.”

Bank Management

The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators and some management teams could be ousted as the government seeks to provide a shield to taxpayers.

Bank seizures are “going to happen,” Senator Bob Corker, a Tennessee Republican, said in an interview after a meeting between Obama and Republican lawmakers in Washington yesterday. “I know it. They know it. The banks know it.”

Laura Tyson, an adviser to Obama during his campaign, said banks need to be recapitalized “with different management” so they start lending again. “You find some new sophisticated management unlike the failed management of the past,” Tyson, a University of California, Berkeley, professor, said today at the World Economic Forum conference in Davos, Switzerland.

Still, nationalization of a swath of the banking industry is unlikely. House Financial Services Chairman Barney Frank said yesterday “the government should not take over all the banks.” Bair said earlier this month she would be “very surprised if that happened.”

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