Taxpayers Should be Outraged…

Taxpayers Should be Outraged…

Background: Bank Holding Companies  with $50 billion or more in total consolidated assets are required by Dodd-Frank to submit annual capital plans to the Federal Reserve. The plan is to include all actions expected to impact capital over the next nine quarters. Based on these plans, the Federal Reserve projects what would happen to  each in a “severely adverse scenario”.

Ally Financial, Inc. (formerly GMAC) is one of the 18 bank holding companies that must submit to this stress testing. It did not do well on the latest one.

Further, seven of the more than 700 companies that received TARP money in 2008 were designated as “Exceptional Assistance Recipients” due to the amount and nature of their bailouts. Three are left: AIG, General Motors & Ally (GMAC).

Ally, a bank holding company, received TARP funds, not as part of the Capital Purchase Program (CPP) for banks (which  made money; JRN 30:07), but as part of the Automotive Industry Financial Program (AIFP). It received over $16 billion from the Treasury, which still owns about 80% of the company.

Now: On January 28, 2013, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) sent a scathing memo to then Treasury Secretary, Tim Geithner, regarding the executive compensation decisions of these three exceptional assistance recipients: AIG, GM and Ally. Even though the guidelines for executive compensation put a $500,000/year cap on cash payments, the Office of the Special Master,  aka Pay Czar, has approved at least that amount for 70% of the executives in question. The pay czar’s job is to look out for the interest of the taxpayers. Instead, according to the memo, “decisions were largely driven by the proposals of the same companies that historically, and again in  2012, proposed excessive pay”.

The Outrage: We got a hold of the actual 2012 salary structure that the Treasury approved for Ally Financial’s senior executives. Of the 20 “Most highly compensated employees”, total direct compensation (cash salary + stock salary + long term restricted stock) ranged from $1.9 million to $9.5 million. The cash portion increased 2.6% from 2011 for the 19 that remained on the list from 2011. Only eight were below the $500,000 guideline and five of those were just below, at $491,000.

Granted, much of this is in stock and may not be  transferable until TARP is repaid, but this “skin in the game” approach would probably be more effective if the guaranteed portion was lower. Their argument: they need high salaries to retain personnel qualified to implement an effective turnaround. Hmm.

The biggest U.S. bank holding company, JPMorgan Chase recently docked its CEO Jamie Dimon’s pay. What had been a $23 million annual cash + stock was cut to just $11.5 million after a $6 billion trading loss in London. Dimon heads the biggest bank, but he isn’t exactly a bellwether.

Forbes (6/20/2012) named Aurelio Aleman, president of First BanCorp (parent of **FirstBank of Puerto Rico) as the bank CEO with the lowest salary (at    banks between $10 and $500 billion in assets) at $855,000. The second lowest was Dennis Nixon of International Bancshares (parent of four 5-Star banks in Texas) at $1.242 million.

Ally’s CEO, Michael Carpenter was not only allowed to earn $9.5 million in 2012, he’s asking for a raise. The company has requested approval to pay Carpenter $9.6 million in 2013 and Thomas Marano $8 million. (Marano is CEO of its Rescap subsidiary, which is currently in bankruptcy.) To date, Ally has only paid back one-third of its nearly $17 billion bailout. As taxpayers, we should be outraged.