Financial Crisis News Center

TARP Executive Compensation Rulings Issued

This story appeared in Bank Digest.

The Special Master for TARP Executive Compensation has issued an opinion that a subsidiary of American International Group will no longer be considered to be a TARP recipient after the subsidiary's sale to MetLife, Inc.

Chamber of Commerce Opposes Webb Bonus Tax Amendment to Extenders Bill

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

In a letter to the Senate, the US Chamber of Commerce said that an amendment to the Tax Extenders Act, HR 4213, that would impose a 50 percent tax on bonuses paid at firms that received TARP and other federal emergency funds would hamper efforts to resolve the ongoing financial crisis, restore economic growth, spur job creation, and is likely unconstitutional. With the punitive use of taxation to target specific companies, said the Chamber, businesses would be reluctant to participate in future emergency programs. Such an outcome would limit the government’s ability to manage crises in the future.

Amendment to Extenders Bill Would Tax Excessive Wall Street Bonuses at 50 Percent

This story appeared in Jim Hamilton's World of Securities Regulation.

An amendment to the Tax Extenders Act (HR 4213) under consideration in the Senate would tax excessive Wall Street bonuses. The measure is co-sponsored by Senator James Webb (D-Va) and Senator Barbara Boxer D-CA) . The Webb-Boxer measure, which is essentially the earlier introduced Taxpayer Fairness Act, S. 2994, would impose a 50 percent excise tax on the bonuses of employees at banks, financial firms, and Fannie Mae and Freddie Mac, that exceeded $400,000 in 2009. Any employee who received a bonus larger than $400,000, the salary of the President of the United States, would have to pay a 50 percent tax on the portion of the bonus over $400,000. This is a one-time tax on firms that received more than $5 million in TARP and other federal emergency assistance funds. It affects only bonuses received this year that are based on performance in 2009. The revenues generated would be used for deficit reduction. According to Sen. Boxer, the excess bonus tax will return to the Treasury about $10 Billion over time.

Court Approves Bank of America Settlement with SEC

This story appeared in Bank Digest.

The U.S. District Court for the Southern District of New York has approved a $150 million Bank of America settlement with the Securities and Exchange Commission. The settlement stems from Bank of America's failure to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve a merger between the two companies. The court determined that the bank failed to adequately disclose bonuses and losses, but that it was unclear whether the lack of disclosure resulted from negligence or intentional fraud.

Senator Webb May Add Excessive Bonus Tax Legislation to Jobs Bill

This story appeared in Jim Hamilton's World of Securities Regulation.

Legislation taxing excessive Wall Street bonuses may be added to the jobs bill by Senator James Webb (D-Va). The Webb-Boxer measure, S 2994, would impose a 50 percent excise tax on the bonuses of employees at financial firms, and Fannie and Freddie, that exceeded $400,000 in 2009. Any employee who received a bonus larger than $400,000, the salary of the President of the United States, would have to pay a 50 percent tax on the portion of the bonus over $400,000. This is a one-time tax on firms that received more than $5 million in TARP money. It affects only bonuses received this year that are based on performance in 2009. The revenues generated would be used for deficit reduction.

Supplemental Executive Compensation Determination Issued Regarding AIG

This story appeared in Bank Digest.

Kenneth R. Feinberg, Special Master for TARP Executive Compensation, has issued a supplemental executive compensation determination regarding a potential new hire by AIG. The proposed compensation structure was determined not to be contrary to the public interest.

Grassley Asks Whether AIG Bonus Contracts Were Signed After Bailout

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has asked Treasury Secretary Tim Geithner for information and documents on the timing of bonus contracts for executives at American International Group (AIG). According to Kenneth Feinberg, the Special Master for TARP Executive Compensation, the recently announced bonuses must be paid because the contracts pre-dated the government bailout. Grassley told Geithner that he believes some of the contracts were, in fact, signed after AIG received government money and even after the law creating TARP was passed. “At a minimum, why should Treasury honor contracts executed in September and October, 2008, after AIG began receiving billions in taxpayer support?,” Grassley asked in his letter. The letter also asks for information on the government's efforts to rein in, and possibly recover, some bonus payments.

Committee Members Spar Over GSE Compensation Plans

This story appeared in Bank Digest.

Rep. Spencer Bachus, R-Ala., the Ranking Member of the House Financial Services Committee, commented on assertions made by Committee Chairman Barney Frank, D-Mass., regarding the applicability of H.R. 1664 to community banks. H.R. 1664 would amend the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 to prohibit unreasonable and excessive compensation and compensation not based on performance standards. Bachus noted that “H.R. 1664 would have given government bureaucrats virtually unbridled authority to write compensation rules for all institutions receiving direct capital investments by the government, including community banks across America that received funds under the Capital Purchase Program (5% loans and warrants). It was an overly broad bill that applied to all employees rather than just top executives. While supposedly targeted at compensation practices at large financial institutions like AIG, it unfairly penalized small community banks with responsible compensation arrangements that had nothing to do with the excesses on Wall Street.”

Frank countered Bachus’s assertion in a statement noting that Bachus “incorrectly stated that the bill he voted against, H.R. 1664, would have unfairly penalized small community banks with responsible compensation arrangements that had nothing to do with the excesses on Wall Street.”

Bachus Questions Hearing Motivation

This story appeared in Bank Digest.

Financial Services Committee Ranking Member Spencer Bachus, R-Ala., has sent a letter to Committee Chairman Barney Frank, D-Mass., expressing his disappointment that Acting Director of the Federal Housing Finance Agency Edward DeMarco has not been invited as the Republican witness at Friday's full committee hearing on compensation practices at financial firms. According to Bachus, the December 2009 FHFA announcement of Fannie Mae and Freddie Mac executive compensation for 2010, which includes $6 million each for the Fannie and Freddie CEOs, makes DeMarco's inclusion “critical to understanding the underlying issues that will be addressed.” Bachus stated that the “decision to deny my request to invite DeMarco...raises serious questions about the motivation for the hearing.”

Grassley Questions Severance Package for AIG Executive

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has sent a letter to the Troubled Asset Relief Program (TARP) special master for compensation asking him to explain why an AIG executive who resigned is entitled to a multi-million dollar severance agreement. The company received significant TARP money, and the federal special master for compensation is charged with ensuring appropriate compensation for program participants. “The taxpayers are fed up with massive payouts to executives at companies that took taxpayer money,” Grassley said. “The special master for compensation should account for a multi-million dollar severance agreement for this AIG executive.”