$1.6 Billion of Bailout Went to Pay Top Execs

by Dollars and Sense

According to a study by the Associated Press, $1.6 billion of the federal bailout funds went into the pockets of top bank executives. Even institutions that have cut the salaries and bonuses of top corporate officers have awarded massive compensation packages, despite having logged billions of dollars in losses.

Some highlights:

The total amount given to 600 top executives of financial institutions that have received federal bailout money would have covered what many of the 116 banks received in taxpayer funds.

Banks that received federal bailout money paid their executives an average of $2.6 million in salary, benefits, and bonuses.

The top five executives of Goldman Sachs took home $242 million last year, including $54 million for CEO Lloyd Blankfein. The company has received $10 billion in taxpayer money, and has posted its first quarterly loss since going public in nine years ago. Reacting to public outrage over executive compensation, the executives have decided to forgo their bonuses this year, and live off a mere $600,000 salary (no word yet on any plans to refund last year's bonuses).

The rest of the sad story can be found here.

Labels: executive pay, Golden Parachutes, Goldman Sachs, TARP program, taxpayer ripoff

 

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12/21/2008 09:32:00 PM 0 comments

 

Citi bonanza for Goldman or Morgan?

by Dollars and Sense

According to Bloomberg.com:

A purchase of Citigroup Inc. would "significantly" add to Goldman Sachs Group Inc. or Morgan Stanley's earnings as long as the U.S. government absorbed losses on the embattled bank’s assets, according CreditSights Inc.

Buying Citigroup "would be significantly accretive to Goldman and Morgan Stanley's earnings as the potential buyer would be acquiring a significant future earnings stream for a relatively low price," David Hendler, an analyst at CreditSights in New York, wrote in a report yesterday. The buyer "would probably receive government support if it was needed."

...

Goldman Sachs and Morgan Stanley were the two biggest U.S. securities firms before converting to bank holding companies in September. They took the step after smaller rival Lehman Brothers Holdings Inc. was forced into bankruptcy, undermining investors' faith in investment banks that rely on the constricted debt markets for financing. All three firms are based in New York.

Goldman and Morgan Stanley have said they would consider acquisitions to help build their deposit bases. Spokespeople for both companies declined to comment on whether they would consider buying Citigroup.

Citigroup's $2 trillion of assets would have to be booked by any acquirer at current market values, which could translate into about $100 billion of writedowns, CreditSights estimated. To help facilitate a transaction, the Federal Deposit Insurance Corp. could provide loan-loss support or the U.S. Treasury could contribute money from the $700 billion Troubled Asset Relief Program passed by Congress in October, the report said.

In related news, analysts predict that the purchase of Citigroup Inc. would "significantly" add to Dollars & Sense's earnings as long as the U.S. government absorbed losses on the embattled bank's assets...

Labels: Citigroup, Goldman Sachs, Morgan Stanley, TARP program, taxpayer ripoff

 

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11/23/2008 09:36:00 PM 0 comments

 

Banks Spend Cash On Dividends, Not Loans

by Dollars and Sense

Senator Charles Schumer (D-NY) and others are raising alarm bells at reports that banks are spending more than half of their bailout money on paying dividends to shareholders, rather than lending money to borrowers.

According to today's Washington Post

The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.

Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.

The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury's investment over the initial three-year term.

"The terms of our capital purchase program were set to encourage participation by a broad array of financial institutions so they strengthen their financial positions," Treasury spokeswoman Michele Davis said.

The Treasury's approach contrasts with decisions by foreign governments, including Britain and Germany, to require banks that accept public investments to suspend dividend payments until the government is repaid. The U.S. government similarly required Chrysler to suspend its dividend payments as a condition of the government's 1979 bailout.

The legislation passed by Congress authorizing the Treasury's current bailout program is silent on the issue.

The Treasury Department defends the practice, claiming that otherwise banks would be dissuaded from applying for bailout funds in the first place.

For their part, the banks are claiming that the dividends are coming from an entirely different stash of money, presumably the one that they have kept hidden from anyone as they pleaded for government support.

Labels: banking system, financial crisis bailout, taxpayer ripoff, Treasury Department

 

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10/30/2008 12:49:00 PM 0 comments