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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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January 29, 2009 4:05 PM ET
The Treasury Department should consider revoking executive bonuses at failed institutions that are getting government assistance, a panel appointed by Congress to oversee the $700 billion bailout recommended. Currently, these institutions must subject bonuses to so-called clawbacks only if the payouts are based on banks’ misleading financial statements. The legislation enacted last October modeled this provision on the 2002 Sarbanes-Oxley Act. “The prospect of losing bonus compensation could deter risky practices that make the federal rescue more probable,” the Congressional Oversight Panel led by Harvard Law Professor Elizabeth Warren said in a report released today. Treasury should also monitor banks in the bailout to make sure that executives don’t get stock options or other incentives that encourage them to take unnecessary risks and inoculate them to stock declines, the panel said. Treasury spokespersons did not immediately respond to a request for comment. Among the institutions that have received federal aid under the Troubled Assets Relief Program are Citigroup, Fannie Mae, General Motors and American International Group. In separate recommendations, the panel also said a single regulator such as the Federal Reserve should be empowered to protect consumers from risky practices on mortgages and other loans. It also called for a regulator to monitor systemic risk at financial institutions. The report was approved by the three members appointed by Democratic lawmakers and rejected by the two Republicans. The Republicans’ dissent did not address the recommendations for Treasury on executive pay. The 108-page report faulted mortgage giants Fannie Mae and Freddie Mac for moving in the 1990s from an executive pay model based on corporate stability to one focused on stock incentives. “If it is not abandoned, taxpayers will end up paying for imprudent risk taking by improperly incentivized executives,” the panel said. The report also noted that the ratio of executive compensation at public companies to average worker pay had soared nearly 10-fold to 400-to-1 from 1982 to 2002. It cited as an example Angelo Mozilo, former chief executive of Countrywide Financial, who got more than $400 million from 2001 to 2007, most of it stock-related. Countrywide, the biggest provider of subprime loans, was rescued from bankruptcy by being acquired by Bank of America, which itself is now getting federal aid. Under the bailout legislation enacted last October, banks getting bailout money must limit golden parachute payments to senior executives to no more than three times the executives’ base pay. Bailout recipients can’t offer top managers incentives that “encourage unnecessary and excessive risks that threaten the value of the financial institution,” according to the law. The legislation also prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive. [To see a copy of the Congressional Oversight Panel report, "CLICK HERE"]
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