Buzzards in...
The Bank of New York
Sightings from The Catbird Seat
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December 22, 2008
Where'd the bailout money go?
Shhhh, it's a secret
By MATT APUZZO, Associated Press
WASHINGTON – It's something any bank would demand to know before handing out a loan: Where's the money going?
But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.
"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?
None of the banks provided specific answers.
"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.
Some banks said they simply didn't know where the money was going.
"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.
The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion — about the size of the Netherlands' economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.
There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.
"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.
But, at least for now, there's no way for taxpayers to find that out.
Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.
"Those are legitimate questions that should have been asked on Day One," said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?"
Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.
A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.
But no bank provided even the most basic accounting for the federal money.
"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.
Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.
Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."
Most banks wouldn't say why they were keeping the details secret.
"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.
Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."
The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.
Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.
"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."
Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.
"It would take a lot of nerve not to give answers," she said.
But Warren said she's surprised she even has to ask.
"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.
Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.
"A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal," he said.
http://news.yahoo.com/s/ap/20081222/ap_on_bi_ge/meltdown_secrets
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See also: No Bailout for Buzzards
December 21, 2008
AP study finds $1.6B went to
bailed-out bank execs
By FRANK BASS and RITA BEAMISH, Associated Press
Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.
The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.
Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.
The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.
Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place....
The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help.
Among the findings:
_The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.
_Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million.
This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. They will work for their base salaries of $600,000, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday declined to comment beyond that written report.
The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.
_Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp., took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.
_John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.
Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.
The AP review comes amid sharp questions about the banks' commitment to the goals of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program's goals, instructing the Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.
The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes.
Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.
At Bank of New York Mellon Corp., chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.
Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.
JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.
Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation's security-conscious commercial air terminals.
Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions — something particularly hard to take when banks then ask for rescue money.
He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds.
"The tougher we are on the executives that come to Washington, the fewer will come for a bailout," he said.
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On the Net:
SEC Filings & Forms: http://www.sec.gov
Emergency Economic Stabilization Act: http://www.treas.gov/initiatives/eesa/
January 4, 2006
Bank of New York Agrees to
Reform Its GC Office
A new "head of law enforcement"
is part of nonprosecution pact
Sue Reisinger
Corporate Counsel
Post-9/11 changes in federal banking laws have just claimed their latest victim.
Federal prosecutors recently announced that The Bank of New York Co. admitted responsibility for failing to comply with several enhanced provisions of the Bank Secrecy Act, which Congress amended four years ago when it passed the USA Patriot Act. Primary responsibility for the noncompliance, prosecutors made clear, rested with BNY's law department. Though the bank escaped criminal charges, it must carry out a sweeping array of in-house reforms or face the possibility of future indictment.
In a nonprosecution agreement with the U.S. Attorney's offices for New York's eastern and southern districts, BNY admitted that by failing to implement effective anti-fraud programs, it aided and abetted two separate crimes that occurred between 1991 and 2002. One was a money laundering scheme that funneled billions of dollars from Russia through the bank; the other involved sham escrow agreements at a BNY branch.
The bank also admitted that even after officials learned about the escrow fraud, they failed to report it promptly to the government as required by law.
BNY's law department was headed during the most serious compliance failings by J. Michael Shepherd, who became GC in 2000 and left in 2004. Shepherd declined to comment about the agreement. According to a BNY spokesman, Shepherd left the bank "on his own terms." He is now GC of the Bank of the West in San Francisco.
John Liftin, BNY's current general counsel, said he can't discuss the agreement, since its main aspects were already agreed on by the time he joined BNY in April 2005.
AN 'UNPRECEDENTED' POST
If BNY doesn't fulfill the terms of the the agreement over the next three years, it can be indicted on the charges described in the document. The deal calls on BNY to pay $38 million in penalties and retribution -- one of the biggest monetary punishments ever imposed on a financial institution -- but just as significant are the institutional reforms that prosecutors demanded.
In addition to hiring an independent monitor, BNY also agreed to create an unprecedented post in its legal department called "head of law enforcement and investigations." In mid-2004, the bank filled this position with Matthew Biben, a veteran federal white-collar criminal prosecutor.
Biben, who reports to GC Liftin and CEO Thomas Renyi, is responsible for "responding to all law enforcement inquiries and coordinating the preparation" of suspicious activity reports.
Since joining the bank, Biben has hired seven additional attorneys.
For more, GO TO > > > Behind the Blinds at First Hawaiian Bank; Confessions of a Whistleblower; Dirty Money, Dirty Politics & Bishop Estate; Nests Along Wall Street
November 9, 2005
Bank of New York Settles U.S. Inquiry Into Money Laundering
By Timothy L. O’Brien, New York Times
Federal prosecutors said yesterday that the Bank of New York agreed to pay $38 million in penalties and victim compensation in a deal stemming from a six-year investigation of fraud and money laundering involving suspect Russian and American bank accounts and other fraudulent transactions.
Prosecutors said the bank, one of the nation’s oldest, did not adequately monitor and report suspect accounts at the bank.
The bank agreed to make what prosecutors described as “sweeping internal reforms to ensure compliance with its antifraud and money laundering obligations.”
Authorities sad that the bank has “accepted responsibility for its criminal conduct” and that it will not be prosecuted as long as it complies with the terms of the deal for three years.
Bank of New York also agreed to allow an independent examiner to monitor its operations.
The investigation, which began in 1998 and ended last year, first became publicly known in the summer of 1999 when Russia’s pell-mell rush to privatize formerly state-owned assets resulted in widespread criticism of insider deals and possible corruption among Russia’s business elite and officials of the Kremlin.
The fine, which is among the largest ever assessed against an American bank for money laundering violations, consisted of $14 million for failing to supervise suspect Russian accounts and $24 million for a separate series of fraudulent activities involving a branch on Long Island.
Riggs Bank, a subsidiary of the Riggs National Corporation, paid $41 million in federal penalties this year and last to settle a high-profile investigation of money laundering problems at that institution.
Prosecutors withe the United States attorneys’ offices in Manhattan and Brooklyn noted that the money laundering scheme at the Bank of New York involved unlicensed transmissions of about $u billion that originated in Russia, passed through American accounts, and then moved into other accounts worldwide.
Authorities said that at least nine individuals, including a former Bank of New York vice president, had been convicted for their roles in the two cases.
The Bank of New York acknowledged in the settlement that it had failed to adequately police and intentionally failed to report suspect accounts at the bank. Moreover, according to the settlement, the bank’s general counsel, managing counsel, and other senior executives repeatedly ignored requirements to report illicit transactions until authorities began arresting suspects in its investigations.
The agreement also said that the Bank of New York subsequently provided incomplete reports about suspect activities and failed to report separate transactions that resulted in the defrauding of other banks - even though the Bank of New York had already reached an agreement with regulators to overhaul its troubled monitoring operations.
“We are satisfied that reaching this agreement is in the best interest of our company and all of our constituents,” the bank’s chief executive, Thomas A. Renyl, wrote in a statement. “We are taking the right steps in today’s environment to ensure sound business practices.”
Two Russian emigres - Lucy Edwards, a former vice president at the bank, and her husband, Peter Berlin - originally opened the suspect accounts at the bank in 1996. The couple pleaded guilty to fraud charges in early 2000, conceding that they helped two Moscow banks conduct illegal operations through Bank of New York accounts....
In 1999. the Bank of New York suspended Natasha Gurfinkle Kagalovsky, a senior executive who oversaw Ms. Edwards. Federal investigators were exploring Ms. Kagalovsky’s possible role in the money laundering scheme at the time and she subsequently resigned from the bank and moved to London. she has never been charged with wrongdoing in connection with the investigation....
Ms. Kagalovsky’s husband, Konstantin Kagalovsky, served in secure government and corporate posts in Russia. He once worked for two large companies, Menatep and Yukos, which the Russian billionaire Mikhail Khodorkovsky formerly controlled. Mr. Khodorkovsky, once one of Russia’s most prominent and powerful figures, was convicted in Moscow in May on fraud and tax evasion charges in a highly disputed case pitting him against the Kremlin.
J. Michael Shepherd, who was general counsel at the Bank of New York during the money laundering investigation, left the bank last year to become general counsel of the BancWest Corporation.
He did not return a telephone call seeking comment.
For more, GO TO > > > Confessions of a Whistleblower; Dirty Money, Dirty Politics & Bishop Estate; First Hawaiian Bank: Behind the Blinds; Nests Along Wall Street
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MORE TO COME
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Originally posted December 28, 2006, by The Catbird
Last update December 22, 2008,