WASHINGTON - The prospect of taxpayer money lining the
wallets of executives at banks being bailed out by the government
prompted congressional leaders and New York's top law enforcement
official on Wednesday to demand answers from the banks themselves and
the Treasury Department.
The officials' requests reflect growing concern among some lawmakers
about the rapidly evolving shape of the Bush administration's
$700-billion bank bailout program.
With credit markets in crisis and stocks roller-coastering daily,
Treasury Secretary Henry Paulson is managing a program that was
initially set up to buy troubled mortgage-backed bonds, but now is
focused chiefly on buying stock in banks, and possibly helping other
businesses such as insurers.
Rep. Barney Frank, chairman of the House of Representatives
Financial Services Committee, on Wednesday scheduled a hearing for
November 18 to look into what's happening with Paulson's fast-moving
program, co-managed by the Federal Reserve, and known as the Troubled
Asset Relief Program (TARP).
Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi,
the top Democrats in Congress, on Wednesday expressed concern about
senior executive pay at financial institutions benefiting from taxpayer
The law enacting the controversial program set limits on executive
pay at participating banks, but Reid and Pelosi said in a letter to
Paulson that those limits may need tightening.
"News reports have suggested that six major financial institutions
participating in the program have plans to pay their executives
billions of dollars," said Pelosi and Reid, who represent California
and Nevada, respectively. "Such reports understandably infuriate many
The Treasury Department confirmed on Wednesday that it has spent
$125 billion to purchase preferred shares of stock in nine large banks
under the program.
BONUSES IN '07 AT $50 BLN
Those nine banks paid out an estimated $50 billion of bonuses in
2007, based on the total compensation expense for the companies, and
assuming that for investment banks about 60 percent of total
compensation was allocated for bonuses, and for commercial banks about
20 percent went to bonuses.
Critics of the bailout program told Reuters earlier this month that
its compensation restrictions may not rein in CEO pay at banks getting
government cash infusions because the rules are vague and subject to
While the pay limits do restrict things like so-called "golden
parachute" severance awards, they set no precise limits on corporate
leaders' pay, the critics said.
"Given the level of public outrage ... we hope you will seriously
consider strengthening the restrictions on executive compensation,"
Pelosi and Reid told Paulson in the letter.
A Treasury Department spokeswoman said every bank that accepts money
under the stock purchase portion of the TARP must agree to the pay
restrictions passed by Congress and every bank that is receiving funds
has done so.
Another Democrat, New York Attorney General Andrew Cuomo, demanded
information about executive bonus pools from the nine banks involved in
the Treasury bailout -- including Bank of America, Citigroup and
Cuomo asked the banks to explain how they intend to protect taxpayer
funds received through the program. He said bonus payments made by
"undercapitalized firms" may be illegal.
Letters from Cuomo also went to Bank of New York Mellon, JPMorgan
Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo.
"We will have grave concerns if your expected bonus pool has
increased in any way as a result of your receipt or expected receipt of
taxpayer funds from" the federal bank bailout program, Cuomo said in
House Republican Leader John Boehner, of Ohio, also shot off a
letter to Treasury, questioning its "apparent decision to permit banks
to use bailout money to pay bonuses to executives and acquire other
banks," said a statement from his office.
Bank of America, Goldman, Morgan Stanley, Merrill, JPMorgan, Bank of
New York Mellon and Wells Fargo officials declined to comment. A State
Street representative was not immediately available.
A Citigroup spokesman said the bank will cooperate with inquiries
into wages, health insurance and benefits and "adhere to applicable
legal and regulatory requirements."
Additional reporting by David Lawder and Kim Dixon in Washington;
with Daniel Wilchins, Jonathan Stempel, Grant McCool, Joe Giannone and
Martha Graybow in New York
Editing by Bernard Orr