Banks have proven to be remarkably immune to condemnation over senior level pay. CEOs and top level producers seem to have an undimmed sense of entitlement, even though the nine banks receiving the first Treasury
handouts equity purchases earned a collective $305 billion from 2004 to mid 2007, followed by $323 billion in writedowns.
But the powers that be are keeping up scrutiny and pressure. The latest salvo comes from New York attorney general Andrew Cuomo. At this stage, Cuomo appears merely to have made a request to the nine recipients of Federal largess to cough up fairly extensive information about bonuses. If the firms fail to respond, he may try to force them to comply. The New York AG would then resort to a legal theory that is a bit of a stretch. Even if Cuomo is unlikely to win a case based on this theory, it may have enough substance to survive a motion for summary judgment from the opponents. If it does, Cuomo can then proceed to discovery, which means he can gather a great deal of potentially embarrassing information.
From the New York Times:
Under pressure from members of Congress to curtail compensation, banks now face a new threat from Andrew M. Cuomo, the New York attorney general, who sent a letter on Wednesday to nine big financial institutions receiving government aid.
Mr. Cuomo gave the companies a week to provide a “detailed accounting regarding your expected payments to top management in the upcoming bonus season.”
That could prove difficult for the banks, which typically do not complete bonus pools until later this month at the earliest.
Mr. Cuomo’s letter also warned that payments worth more than the services provided by executives might violate New York law.
The letter follows one sent earlier this week to the same banks by Henry A. Waxman, the California Democrat who is chairman of the House Committee on Oversight and Government Reform, urging them not to use any government money for bonuses or other payments and asking for data on pay going back to 2006…
Any lawsuit based on the law cited by Mr. Cuomo would take some creative legal footwork, said Edward R. Morrison, a law professor at Columbia University. The law permits creditors to try to recover or block payments. “You have to find a way for the attorney general, for Cuomo, to shoehorn himself into the position of a creditor,” Professor Morrison said. “It’s not implausible.” The attorney general could act under the law, Professor Morrison said, if New York state pension funds hold bonds issued by the nine companies. Mr. Cuomo might also claim jurisdiction over any of the companies that might owe taxes to New York.
The attention raised questions on Wall Street, because bonus payments are already expected to be as much as 50 percent smaller than last year and perhaps even far smaller at banks that posted big losses. The New York State comptroller estimated that Wall Street paid $33.2 billion in bonuses for 2007, compared with $33.9 billion the year before…
Lloyd C. Blankfein, the chief executive of Goldman Sachs, received bonus and stock awards worth about $68.5 million last year, while Goldman’s co-presidents got just slightly less. Those numbers will not be repeated. John J. Mack, Morgan Stanley’s chief executive, declined to take a bonus last year…
In his letter, Mr. Cuomo asked specifically for a description of bonus pools for this year, a description of how money in those pools would be allocated, an explanation of how that allocation might have changed since each company received money under the federal Troubled Asset Relief Program and a description of bonuses paid to executives earning more than $250,000 in 2006 and 2007….
Citigroup said it would “cooperate with federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices. In addition, we will of course adhere to applicable legal and regulatory requirements, including those in the federal government investment program, such as restrictions on executive compensation.”…
Other financial institutions did not return calls.