An interesting article I received through email.
Some things just never change -- especially in the banking industry, where there's a whole lot of the "same old, same old" taking place once again.
The U.S. government is a major shareholder in the largest banks today -- financial institutions that came crawling to the U.S. government to be bailed out when they were injured.
The government has repeatedly commanded these institutions to stop excessive executive pay and bonuses. But, who listens to major shareholders anyway?
When Will the Banks Ever Learn?
Morgan Stanley (MS) actually announced that it was boosting executive salaries. Why? Because the government said that bonuses would not be tolerated. Clearly Morgan Stanley, the sixth-largest U.S. bank, does not get the picture. In fact, the company announced that it intends to double its CFO's pay.
Are they alone? Hmmmm ... hardly.
UBS AG (UBS), the European bank with the largest financial losses, plans to raise "senior banker" compensation by 50%. This equates to $811 million.
Remember that UBS, under the direction of "senior bankers," amassed the biggest loss in the bank's corporate history in just one year, 2008. Why raise salaries? Because the Swiss government, like the U.S. government, bailed out UBS and said "no more executive bonuses." Increased salaries come from the same pool of money as bonuses, even if accounting rules put them in another category. It's the old "robbing Peter to pay Paul syndrum."
Royal Bank of Scotland's (RBS) executive pay has increased dramatically with the rise in value of the bank shares just over the last two months. Now RBS is under pressure because its executive pay scale has not been made transparent.
Like UBS, RBS is nearly wholly owned by the Swiss government. Yet, the company continues to talk about raising executive pay levels ... despite the fact that RBS' losses in 2008 were nearly $42 billion.
Bank of America (BAC) said the company is boosting salaries for senior executives. How much? By as much as 70% for its investment bankers.
Remember, B-of-A received $45 billion in taxpayer bailout money. After the infamous "bank stress tests," B-of-A needs to raise $34 billion in private equity. So, what would its salaries look like after the pay raise? Managing directors' salaries would increase to $300,000 from $180,000. Less-senior directors would receive $250,000, up from $150,000.
But it's "OK," because bonuses would become "smaller," said Brian Moynihan, B-of-A's president of investment banking and wealth management. “We believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”
Citigroup (C) expects to raise base salaries in compensation for reduced bonuses as well. Why? To deflect key employee resignations. But aren't these the same investment bankers who were the masterminds of Citi's $8.29 billion loss in Q4 2008, along with another $966 million in Q1 2009?
And isn't it Citigroup that desperately needed $45 billion in bailout funds, while simultaneously purchasing a $50 million, 12-seat plane for these same senior investment bankers?
And let's not forget Goldman Sachs (GS). Remember them? Didn't they borrow a cool $12 billion from taxpayers and receive an additional $12.9 billion from AIG (that was also bailout-funded)? Goldman just announced that 50% of its revenue is now set aside for salaries, bonuses and benefits -- up 48% from one year ago. The amount: $4.7 billion ($168,000 per employee).
Goldman reps have repeatedly talked about the company's "duty" to repay the bailout money. Why? Is it really because of a sense of "duty" or because bailout money gives the U.S. government the right to oversee/restrict executive pay?
The company's seven top execs were required to give up their multimillion-dollar compensation bonus packages. Once the money is repaid, however, government control of bonuses is over.
But does it really matter? Since when does Goldman Sachs kowtow to the likes of the U.S. government? The U.S. is now a major shareholder in Goldman and still the company is planning to spend $4.7 billion in executive pay increases.
Here's the rub for U.S. taxpayers. We were forced to bail out investment bankers and brokers who caused the collapse of the stock market in 2008. Only a few of them lost their jobs for what they did. Now they are actually demanding pay increases.
To get what they want, these bankers/brokers need to repay the bailout funds -- thus removing government oversight restrictions. But if the government allows the bankers to repay the bailout funds, (now that they are doing better and able to raise private equity), the taxpayers once again get squeezed. Why? Because they would be returning the funds at below-market prices.
Governments that bailed out banks/brokerages received warrants from the banks in exchange for the original loan. Those warrants gave the governments the option to buy bank/brokerage stocks at a set price over 10 years.
In just a few months, stock values have more than doubled -- adding significant value to those warrants. Now the banks want to repay the loans and, in so doing, buy back their warrants. It was Treasury Secretary Tim Geithner who sold the U.S. taxpayers on bailing out the banks because he said that once the banks recovered, taxpayers would benefit from long-term stock gains.
Now, it seems that several of the banks will be allowed to return their funds as early as June 2009, including Goldman Sachs, JPMorgan (JPM) and Morgan Stanley. When asked about why they should be allowed to buy back their warrants, they said that, because of the stock market's March/April/May recovery, the value of the warrants have increased beyond a level that the bankers feel they are worth.
They quickly forgot about crawling on their hands and knees, begging for bailout. Citi and B-of-A in particualr quickly forgot that they were nearly dismantled. Perhaps they need a reminder that that, if it were not for the taxpayers, those warrants would not be worth the paper they were printed on.
Amazing how some things just never change.
How come I don't see myself getting a pay hike?? Opps, I forgot I am not a key executive of the bank and just another joe in this cruel industry where pay hikes are frozen. Sad, but cruelly true.
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