DealZone

You can’t have your TARP and eat it too

February 5, 2009

BUSHCompensation consultants say that limiting executive pay at TARP-recipient banks will make the banks less competitive. They argue that nobody worth their (market) weight in gold wants to work for a bank where the only bonus beyond a half-million-dollar salary is restricted stock options that can’t be cashed in until taxpayers get their due. They may be right, though the market for pricey financial whiz kids and rocket scientists is hardly a rich one these days.

Whenever Uncle Sam steps in as lender of last resort, taxpayers had better concern themselves with the concept of Moral Hazard: that banks can invest recklessly because they know they will get bailed out in the end. The $500,000 pay cap is, in effect, a Moral Hazard roadblock, raising the cost of a bailout for would-be Wall Street gamblers.

But neither side in this argument should get too excited. With nearly $300 billion of TARP funds already out of the bag, and the new compensation rules applying only to future TARP tappings, most of the best executives (such as John Thain’s crew at TARP-funded takeover disaster Merrill Lynch) have already been paid off.

At this point, perhaps the best that free marketers and taxpayers alike can hope for is that executives of submerged financial institutions opt for the failure they have earned rather than a taxpayer lifeline.

Other Deals News:

* China Investment Corp, a $200 billion sovereign wealth fund, and state-owned China Development Bank are both in talks to buy into CITIC Capital Holdings Ltd, an official newspaper said.

* Vodafone has picked U.S. software firm Azingo to develop Linux-based applications, the latest sign the world’s largest wireless operator by sales is keeping Linux operating system LiMo as one of its key choices.

* Spanish construction and energy group Acciona said it will slow the pace of its energy investments if it does not sell its 25 percent of power utility Endesa to Italy’s Enel before 2010.

* Procter & Gamble Co is working with Goldman Sachs to identify potential buyers for its pharmaceuticals brands or find other ways to exit the business, people close to the matter said, the Financial Times reported.

* Shenzhen Zhongjin Lingnan Nonfemet, China’s third-largest zinc producer, said it had won Australian government approval to acquire a controlling stake in zinc miner Perilya.

* General Motors is holding discussions with major Chinese automaker FAW Group to form a partnership for light commercial vehicles, banking on government policy support to drive demand for pick-up trucks and vans.

* Chinese car manufacturer Geely Automobile Holdings Ltd has no plans to buy the Volvo car brand from Ford Motor, a Geely spokesman said.

* Mobile phone technology company 2 ergo said it will buy back former unit SMS specialist Broca in a 4.9 million pounds ($7.06 million) all-share deal.

* Charles Ergen’s EchoStar Corp has quietly accumulated a substantial portion of Sirius XM Satellite Radio Inc’s maturing debt in what could be the first salvo in an attempt to take control of the company, the Wall Street Journal said, citing people familiar with the matter.

* Russian gold producer Peter Hambro Mining will issue shares to raise 55 million pounds ($79 million) and is also close to an all-share takeover offer for iron ore company Aricom, the firm said.

(The 2008 White House Christmas Gingerbread house is seen in the State Dining Room in Washington, December 3, 2008.  REUTERS/Larry Downing )

Comments
7 comments so far | RSS Comments RSS

I suppose that, when viewed from the Olympian heights that some Wall Street comp packages attained, a mere half a megabuck does pose a hazard to the morale of some. The moral hazard has been amply demonstrated by Thain, et. al., as they handed out billions and then immediately turned to Washington for billions more in bail-out funds.

Posted by Christopher Chaloux | Report as abusive
 

My response to your comment, “nobody worth their (market) weight in gold wants to work for a bank where the only bonus beyond a half-million-dollar salary..” is: If those CEOs are so shallow and undedicated after allowing policies/practices under their watch that put their bank in the position of needing the TARP, then let them move on…who in their right mind would hire them for any amount with such a low loyalty and dedication factor as a part of their character or lack thereof.

Posted by Lisa Johnson | Report as abusive
 

Loyalty, in a world where profit is the purpose and “what have you done for me lately” is the motto, goes only as far as the next bonus. I think you forget that the Dept of Labor ranks Investment Banking as the highest stress job available with one of the highest rates of turnover. And while it is easy to watch 30 seconds of CNN and bemoan bonuses, stock options, easy money, crazy finance options, and CMOs…. if you didn’t complain about their evils BEFORE the pain, when it was all roses – then you really don’t have a box to stand on now. Furthermore, the way to stop corporate abuse of the government tit, (or any abuse really) is to turn off the pipe! TARP was a joke, and tax payers are getting what they deserve for allowing such a monumental dole.

Posted by Matthew Miranda | Report as abusive
 

Man, I am in the wrong field. I should have been a banker or a politician. Perhaps I’ll rethink my career.

Posted by jason | Report as abusive
 

See the Wall St. Journal’s piece on Deutsche ubertrader Boaz Weinstein and imagine trying to be his boss. I imagine when you are dealing with the kind of amounts that these folks are, it’s hard to talk about a salary of under seven figures.

 

It is amazing to me that the financial community still thinks of the current financial leaders as being skilled and deserving of bonuses. Given that they have driven the world markets into a recession with their thoughtless, incompetent and reckless greed, they should all be fired, along with the boards of directors of the companies. Would any ‘normal’ employee be allowed to keep his or her job if they lost billions of dollars for their companies? The whole concept of paying high salaries to top executives is that they have the wisdom, skills, knowledge, and leadership to steer their companies to increased revenues and profitability – if this is not the case they should not have that job and there is no justification for their ridiculously high salaries in publicly held companies.

The boards of directors have an obligation to ensure proper performance of the top management. Given that board memebrs have excellent compensations these days, they are just as liable as top compnay executives in the performance, or lack thereof, of companies. Incredibly,nothing much is heard about the board members of the failed financial institutions. In my opinion, it should be mandatory that all top management and boards of directors of failed companies tender their resignation. This would be the true Capitalist system – right now we are heading for a Socialist system with the same failed management geetting TARP money from the government.

 

There goes all the high paid executives to hedge funds and private companies. All that will be left are government employees.

 

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