TARP may end soon, but the battle over banker pay goes on
Bank of New York Mellon Chief Executive Robert Kelly has emerged as the front-runner to replace Kenneth Lewis, but the Journal reported that the pay package may be a deal-breaker. Even though Bank of America has paid back its TARP money, it remains sensitive to possible public outrage about its new CEO's compensation.
Now that Citigroup (C), the last big bank still holding TARP cash, has announced its decision to repay its loans, you may think banks don't need to worry about public opinion anymore. But TARP has definitely changed the playing field, and the American people are watching. My story on AIG executives who threatened to quit in protest over reduced compensation generated over 1,150 comments -- most of them from people who thought they should be fired.
Goldman Sachs (GS) certainly was aware that it was under the microscope when it announced it would give stock instead of cash bonuses to its top 30 executives. The stock cannot be sold for five years and executives can lose the stock if they don't manage risk appropriately. Clearly, Goldman realized that its compensation packages must be changed to punish those who take on too much risk for the company.
Obama: "People on Wall Street Still Don't Get it."
In an interview on CBS's 60 Minutes on Sunday, President Obama threw down the gauntlet over Wall Street compensation, and said he did not become President to bail out the "fat cat bankers on Wall Street." He added that bankers have not shown "a lot of shame" about their behavior or their out-sized compensation, despite the bank bailouts and economic downturn.
Obama said some banks paid back TARP to rid themselves of government control. I think he was being generous saying just "some" did. The president added: "I think in some cases, that was motivation. Which, I think, tells me that the people on Wall Street still don't get it. They don't get it. They're still puzzled, why is it that people are mad at the banks?" Let the banks know how you feel about their compensation packages by posting your comments below.
The heads of major banks will attend a meeting with Obama on Monday at which compensation will be just one of the topics. Another will be the consumer and business credit markets: Expect the president to let banks know it's time to increase lending and give Main Street the same opportunity they were given to recover from the downturn. The administration will clarify again that the taxpayers didn't bail out the banks so "fat cat bankers" could get richer. The intent was to increase the lending capacity for Main Street, as well as to save the financial industry.
Yet banks continue to plan big bonuses, cut lending, raise interest rates and increase other costs to the public. And they are still dispatching their lobbyists to Washington with orders to fight any attempt to strengthen regulation of the financial industry. Clearly, the banks need to hear a stronger message that Main Street won't take it anymore.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.