VAMPIRES IN
THE CITY

Bloodsuckers in a Castle Called Citigroup

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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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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/

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November 24, 2008

Government plans massive Citigroup rescue effort

By Jeannine Aversa, AP Economics Writer

Citigroup rescue includes $20B cash injection,
guarantee on billions in assets

WASHINGTON (AP) -- Rushing to rescue Citigroup, the government agreed to shoulder hundreds of billions of dollars in possible losses at the stricken bank and to plow a fresh $20 billion into the company.

Regulators hope the dramatic action will bolster badly shaken confidence in the once-mighty banking giant as well as the nation's financial system, a goal that so far has been elusive despite a flurry of government interventions to battle the worst global crisis since the 1930s.

Wall Street appeared encouraged as stock futures moved higher ahead of the market opening in New York. Dow Jones industrial average futures rose almost 2 percent. Stock markets in Britain and Germany gained more than 4 percent in afternoon trading. Citigroup shares themselves climbed 44 percent to $5.64 in premarket trading.

"If they didn't help, the damage would be beyond imagination," said Teck-Kin Suan, economist at United Overseas Bank in Singapore.

The action, announced late Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already fragile financial system and the U.S. economy.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a joint statement. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks."

Analysts said a Citigroup failure would have seized up still fragile lending markets and caused untold losses among institutions holding debt and financial products backed by the company.

"It would create chaos," said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $3 billion in equities in Asia. "Simply put, you couldn't borrow or lend for a while. This is a nightmare scenario."

The bold move is the latest in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline -- which was recently rejiggered -- to insurer American International Group.

Critics worry the actions could put billions of taxpayers' dollars in jeopardy and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.

The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief also participated.

Vikram S. Pandit, Citi's chief executive officer, welcomed the action. "We appreciate the tremendous effort by the government to assure market stability," he said in a statement issued early Monday.

The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one -- of $25 billion -- in Citigroup in which the government also received an ownership stake.

As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup. In addition, Citi said it will issue warrants to the U.S. Treasury and the FDIC for approximately 254 million shares of the company's common stock at a strike price of $10.61.

As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.

Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners.

Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank, a major failed savings and loan based in Pasadena, Calif.

Under the IndyMac plan, struggling home borrowers pay interest rates of about three percent for five years. Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.

The IndyMac plan also was used as a model for a new program by mortgage finance companies Fannie Mae and Freddie Mac and for two other failed thrifts taken over by the government on Friday. FDIC Chairman Sheila Bair has been pressing Treasury to use $24 billion from the $700 billion bailout program to put the mortgage modification program on national footing, but Paulson is opposed to that idea.

Citigroup has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup's balance sheet will turn into losses as the economy worsens and the markets stay turbulent -- losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that it is seen by Washington policymakers as too big to fail. The company has operations stretching around the globe in more than.100 countries

Analysts consider Citigroup the most vulnerable among the major U.S. banks -- especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to slash thousands of jobs.

http://biz.yahoo.com/ap/081124/citigroup.html

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< < < FLASHBACK < < <

November, 1998

The Battle For Assets

By Dave Califano, Worth Magazine

Big and bigger—by a different measure

The name of the game in the financial-services business these days can be summed up in three words: assets under management. He who ends up with the most, wins.

Witness the $48 billion merger of Travelers Group with Citicorp. This combination will create a huge new financial-services company--one with an insurance arm (Travelers), a banking unit (Citibank), and an investment house (Salomon Smith Barney).

The new firm, to be called Citigroup, will have over 100 million customers worldwide and control roughly $1.36 trillion in client investment assets (not counting bank deposits). That barely edges out Merrill Lynch, which has $1.35 trillion in client assets under management. UBS, the product of this year's merger between Union Bank of Switzerland and Swiss Bank, controls $1.09 trillion in client assets.

More recently, rumors have been flying that insurance giant AIG will try to snap up Goldman Sachs after Wall Street's most prestigious investment bank goes public as early as this fall. There's also talk that securities firm Lehman Brothers or brokerage house PaineWebber could fall prey to a large European bank like Deutsche Bank.

Given the grab for client assets under way in the industry, Worth was surprised to learn there's no single source of reliable information that ranks the top firms. So we researched our own list of the top ten. Included in each firm's total are institutional assets, brokerage accounts, mutual funds, variable annuities, and private-banking accounts--everything but retail bank deposits. We also looked only at U.S. companies.

Client assets, of course, aren't the only measure of a financial company's clout. Revenue, equity capital, and the institution's own asset base all provide different pictures of a firm's size and strength. The new Citigroup, for instance, will have $44 billion in capital. But it won't stay on top for long.

When NationsBank completes its previously announced merger with BankAmerica (expected in early October), it will have $48.9 billion.

And so the battle continues.  

Worth Online

http://web.archive.org/web/20000816155644/http://msnhomepages.talkcity.com/ReportersAlley/thecatbirdseat/

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November 22, 2008

Pressure on Citigroup builds,
shares fall below $4

By MADLEN READ, Associated Press

Pressure intensified on Citigroup to sell part or all of itself as its stock fell below $4 a share on Friday and fears escalated about future loan losses.

CEO Vikram Pandit told managers earlier in the day he opposes breaking up the company, but the bank's board of directors was meeting Friday to discuss whether to do exactly that, the Wall Street Journal reported.

What investors are worried about is that all the risky debt sitting on Citigroup's balance sheet will eventually turn into losses as the economy worsens and the markets stay turbulent - losses that could be nearly impossible to reverse.

Investors were also fearful that the government might orchestrate a takeover of Citigroup over the weekend that could wipe out common shareholders, said Paul Miller, a Friedman Billings Ramsey banking analyst.

The government was instrumental in JPMorgan Chase & Co.'s buyout of Bear Stearns and Washington Mutual Inc., deals that left shareholders with little or no payouts.

The Treasury Department, the Federal Reserve and other banking regulators are monitoring the situation, government officials said. They spoke on condition of anonymity because of the sensitive nature of the matter.

Concerns about the solvency of financial institutions were starting to ebb after the downfall earlier in the year of Bear Stearns Cos., Lehman Brothers Holdings Inc., and American International Group Inc. But now they are back with a vengeance as the recession deepens, raising the prospects of even more massive loan losses.

Just a couple months ago, Citigroup was the largest bank in the world by assets, stretching into everything from credit cards to consumer banking to high-stakes corporate dealmaking. The company was the result of an idea spawned by the financial deregulation in the late 1990s - that consumers and corporations alike would be better served by a bank that could meet all of their needs.

Almost from the start, though, investors complained Citigroup was too sprawling and too complex to manage properly. And when the subprime mortgage crisis ripped through Wall Street starting last year, Citigroup was hit especially hard because of its high exposure to bad debt. Now, it has failed to turn a profit during the past four quarters, and its shares are trading for less than the cost of a pint of beer at a Wall Street pub.

As a result, analysts consider Citigroup the most vulnerable among the major U.S. banks - especially after it failed to nab Wachovia Corp., bought instead by Wells Fargo & Co., a missed opportunity that put Citi behind in the race for U.S. deposits.

Citigroup's shares tumbled as low as $3.05 a share Friday before recovering to close at $3.77 a share, a decline of 20 percent that left them at their lowest level in nearly 16 years. It was a continuation of a sharp, weeklong plunge that could not be stemmed by Saudi investor Prince Alwaleed bin Talal's decision Thursday to raise his stake in the company to 5 percent from less than 4 percent.

The shares have shed 60 percent of their value since last Friday.

Citigroup has already raised $75 billion in capital this year, including a $25 billion cash investment from the government - and none of it has been enough to muster confidence.

Raising more money on the open market is "pretty much off the table," given the recent plunge in the bank's shares, said William Fitzpatrick, an equity analyst at Optique Capital Management Inc. And raising more cash from outside investors or the government would be "a Band-Aid."

"You're going to have to see more sizable divestitures," Fitzpatrick said. "They're going to have to make changes here, and they don't have time on their side anymore."

People familiar with CEO Pandit's call Friday morning with senior managers, who spoke anonymously because the comments during the call were not made public, said his message was similar to that at his town hall meeting with employees on Monday - that Citigroup has adequate capital, and that he supports the universal bank model for Citigroup, including arms such as Smith Barney.

On Monday, Pandit said the universal banking model is "the right model," and that Citigroup's strategy is "to be the world's truly global universal bank."

Still, one person said, "it's clear everything is on the table. That wasn't explicit, but I think it's clear."

An outright sale shouldn't be ruled out, but it appears unlikely, said Alois Pirker, an analyst at financial services research firm Aite Group. Not only are there few potential buyers right now, but "firms prefer to cherry pick," he said. "If you don't have a well integrated shop, the benefit of taking over the whole versus pieces diminishes."

Pirker said sale opportunities include Citi's Global Transaction Services business and its brokerage, Smith Barney. Pandit has said that these two businesses are important to Citigroup - but these two franchises are not core to retail banking and would be attractive to potential buyers, Pirker said, because they have performed well in the recent turbulent environment.

Selling off the businesses in a particular region is another option, Pirker said. Recently, Citigroup sold off its retail banking business in Germany - it could do the same with Japan, for example, he said.

Citigroup could also consider a merger rather than an outright sale.

"A merger is indeed a possibility at this point," Fitzpatrick said. He said there are a number of firms that would be eager to take over some of Citigroup's businesses - particularly a company like Goldman Sachs Group Inc., an investment bank that recently turned into a bank holding company and is now on the prowl for deposits.

The bank has been rushing to get leaner and wind down its assets backed by risky debt. Monday, Citigroup said it will cut 53,000 jobs, on top of 22,000 cuts previously announced. On Wednesday, the bank said it is acquiring the remaining $17.4 billion in assets held by complex debt products known as structured investment vehicles that it previously ran off its balance sheet.

The subprime residential mortgage crisis has swelled into a full-blown debt crisis for not just Citigroup, but other banks as well, leading to defaults in everything from leveraged loans to credit card debt to commercial real estate loans.

Even JPMorgan Chase, one of the nation's stronger large banks, is shedding about 10 percent of its investment bank staff to better navigate the tough climate.

On Monday, Citigroup's Pandit said the company's consumer portfolio losses could rise between $1 billion and $2 billion each quarter through mid-2009. With Citigroup reporting net credit losses of $4.9 billion during the 2008 third quarter, the forecast means losses could swell to more than $10 billion by the middle of next year.

Pandit also said at the time that Citigroup plans to move $80 billion worth of marked-down assets on its balance sheet into a held for investment, held to maturity or available for sale category - instead of listing them on their trading portfolio. Pandit said the accounting change "allows us to benefit from the inherent upside from these marked-down assets," but some investors saw the move as a tactic to hide bad assets, Fitzpatrick said.

Citi is "a great franchise, but it's damaged right now," Fitzpatrick said. "No one knows what the ultimate losses are going to be on a $2 trillion balance sheet."

Deutsche Bank's Mike Mayo estimated in a note Thursday that Citi will probably have to take an additional $7 billion to $20 billion in markdowns on its investments in the capital markets.

www.forbes.com/feeds/ap/2008/11/22/ap5729916.html

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October 25, 2008

Many bailed-out banks plan
pay raises, worker bonuses

By Rachel Beck and Joe Bel Bruno, Associated Press

NEW YORK — Despite the Wall Street meltdown, the nation's biggest banks are preparing to pay their executives and employees as much as last year or more, including bonuses tied to personal and company performance.

So far this year, nine of the largest U.S. banks, including some that have cut thousands of jobs, have seen total costs of salaries, benefits and bonuses grow by an average of 3 percent from a year ago, according to an Associated Press review.

"Taxpayers have lost their life savings, and now they are being asked to bail out corporations," New York Attorney General Andrew Cuomo said of the AP findings. "It's adding insult to injury to continue to pay outsized bonuses and exorbitant compensation."

Banks will decide what to pay out in bonuses in the coming months. Just because they've been accruing money for incentive pay doesn't mean they will pay it out in full.

That there is a rise in pay, or at least not a pronounced dropoff, from 2007 is surprising because many of those companies were doing some of their best business ever, at least in the first half of last year. In 2008, each quarter has been weaker than the last.

"There are, of course, expectations that the payouts should be going down," David Schmidt, a senior compensation consultant at James F. Reda & Associates. "But we haven't seen that show up yet."

Shelling out bonuses

Some banks are setting aside large amounts. At Citigroup, which has cut 23,000 jobs this year amid the crisis, pay expenses for the first nine months of this year came to $25.9 billion, 4 percent more than in the same period last year.

Even if you subtract what the bank has shelled out in severance pay and other costs related to the job cuts, overall pay is only slightly lower this year.

Typically, about 60 percent of Wall Street pay goes to salary and benefits, and about 40 percent goes to end-of-the-year cash and stock bonuses that hinge on performance, both by the individual and the company, said Brad Hintz, a securities industry analyst at Sanford Bernstein and a former chief financial officer at Lehman Brothers.

"The fundamental goal of the compensation plan is to allow an employee to get wealthy," Hintz said. He also pointed out that the workers' pay is supposed to be "exposed to the risk of the parent company."

This should be the year where that structure is tested. The financial crisis, brought about by mountains of mortgage-related bad assets, caused many banks to falter or fail and lending to dry up and prompted Congress to pass a $700 billion bailout package. As part of that, the government is pouring $125 billion through stock purchases into the nine large financial companies cited in AP's review of compensation.

Besides Citigroup, those include Bank of New York Mellon, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Merrill Lynch, Wells Fargo & Co., and State Street. Another $125 billion will be made available to other banks.

Those taking cash from Uncle Sam must follow guidelines limiting executive pay, including a ban on golden parachutes for departing executives. No restrictions are placed on across-the-board pay.

In total, those nine banks had pay-related costs of $108 billion for the first three quarters of the year. The average increase came to just shy of 3 percent, according to AP figures.

Some spend less

Some banks have set aside less.

Merrill Lynch's costs for pay were $11.2 billion for the first nine months of the year, 3 percent less than last year. That nearly matches the company's $11.7 billion overall loss so far this year.

Merrill spokesman William Halldin told AP that the company thought a better measure is to compare the 2008 compensation expense with the first three quarters of 2006. That would reflect an 18 percent decline from Merrill's last profitable year, he said.

On Wednesday, insurer American International Group agreed to freeze payouts from its $600 million bonus pool and compensation packages for the chief executive and chief financial officers, as well as cancel unnecessary corporate trips and junkets.

AIG, which is not part of the AP review of bank compensation costs, has received government loans topping $120 billion to keep it from collapse. Cuomo calls it a "test case" on payouts.

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August 13, 2008

Retiree fund
down $150.2M

Advertiser Staff

The market value of assets in the