By BEN FELLER
WASHINGTON
The White House on Friday insisted it's not trying to take over two ailing financial institutions, even as stocks tumbled again.
On Wall Street, talk of nationalization of Citigroup Inc., and Bank of America Corp., prompted investors to continue to balk, worried that the government would have to take control and wipe out shareholders in the process. Citigroup fell 20 percent, while Bank of America fell 12 percent in afternoon trading but also came off their lowest levels.
"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House press secretary Robert Gibbs said when asked about nationalizing the banks.
"That's been our belief for quite some time, and we continue to have that," Gibbs said.
Investors have shown decreasing confidence that U.S. banks can right themselves. Citigroup and Bank of America have already received significant help from taxpayers as the government has rushed in to try to save the financial sector, which has been choked by bad assets and seen the flow of credit shrink.
The speculation about the two banks' future continued to take a direct toll on the market.
Gibbs was pressed for more details on his answer -- specifically whether Obama would not nationalize banks. He said it was hard for him to be any clearer.
When a reporter suggested Gibbs could do that by saying point bank that Obama would never nationalize banks, Gibbs would not make that statement, but emphasized: "I think I was very clear about the system that this country has and will continue to have."
Saturday, February 21, 2009
Saturday, February 14, 2009
Congress Set to Curb Exec Pay at Troubled Companies
By Nanette Byrnes
Congress is about to do in one vote what years of shareholder agitation has failed to accomplish: sharply curb top executives' pay at poorly performing companies. The final version of the $787 billion stimulus bill heading toward a vote in the House and Senate steered clear of the hard $400,000 cap the original Senate version of the bill had embraced, but the new terms are pretty stiff nonetheless.
President Barack Obama's Feb. 4 plan capped pay for executives at the very worst-off companies borrowing from the government at $500,000 a year, but left employers open to award millions in long-term restricted stock bonuses. Now Congress has shut that loophole by requiring that bonuses for executives at companies receiving money from the Troubled Asset Relief Program be no more than one-third of their total annual compensation, and come only in the form of restricted stock. Congress' restrictions also apply to all companies taking emergency government aid, adding hundreds of companies to the group the President singled out.
Other provisions include restricting any bonus payments until Uncle Sam is repaid, eliminating golden parachutes to departing executives, requiring bonuses be paid back to the Treasury if misleading earnings or other financial information is reported, and a mandatory "Say on Pay" in which shareholders will vote annually to approve executive compensation at all companies receiving money from TARP.
Sliding Scale
At firms receiving less than $25 million in government rescue assistance, the limits would apply to the highest-paid employee. Those who get $25 million to $250 million would see limits applied to at least the five most highly compensated executives. That doubles to the 10 highest-paid for those receiving between $250 million and $500 million, and doubles again to the top 20 employees of any company (currently including most banks and insurer American International Group (AIG)) that receives $1 billion or more, though generally traders and investment bankers appear to be exempt.
According to Equilar, which tracks executive compensation, companies with $10 billion or more in assets that took taxpayer money from TARP paid their CEO an average of $11 million last year, including an average cash bonus of $2.5 million.
Groups in line with business thinking voiced relief at Congress' decision not to put the compensation ceiling at $400,000, including the Center on Executive Compensation, which quickly praised that move.
Will Top People Flee?
But pay consultants continue to fret that these moves will result in a damaging exodus of top banking talent. "The banks will be forced to choose between keeping their top talent and accepting the benefits of government funds," says David Wise, a pay consultant at Hay Group. "The focus of the banks will be on repaying the taxpayers as quickly as possible. But ultimately what's going to be in taxpayers' best interest is for these banks to perform over a long period." And that, he notes, is hard to do without top-notch people. "Some of the objectives feel right but implementation doesn't," he says.
Those pushing for restraints on executive pay liked the new restrictions, but still argue even these restrictions don't go far enough. "I am afraid that Congress missed a huge opportunity to protect taxpayers from further bailout profiteering," says Sarah Anderson, a pay expert at the Institute for Policy Studies. "The biggest weakness of the stimulus bill is that it fails to set a clear, measurable limit on all compensation. This opens the door for boards to shift compensation from bonuses to other pots, such as salary, pensions, deferred compensation, and perks."
Anderson and others will continue to beat the drum for more pay restrictions. The Institute for Policy Studies has already met with the Obama Administration about the President's promise to investigate executive pay. "We have a social responsibility in the United States to restrain excessive CEO pay," says Institute associate fellow Sam Pizzigati. "We don't depend on corporate boards to make sure companies don't dump toxic waste into our rivers, or to make sure employers don't discriminate against women or people of color. And we don't think we should rely on corporate boards to handle executive excesses."
Congress is about to do in one vote what years of shareholder agitation has failed to accomplish: sharply curb top executives' pay at poorly performing companies. The final version of the $787 billion stimulus bill heading toward a vote in the House and Senate steered clear of the hard $400,000 cap the original Senate version of the bill had embraced, but the new terms are pretty stiff nonetheless.
President Barack Obama's Feb. 4 plan capped pay for executives at the very worst-off companies borrowing from the government at $500,000 a year, but left employers open to award millions in long-term restricted stock bonuses. Now Congress has shut that loophole by requiring that bonuses for executives at companies receiving money from the Troubled Asset Relief Program be no more than one-third of their total annual compensation, and come only in the form of restricted stock. Congress' restrictions also apply to all companies taking emergency government aid, adding hundreds of companies to the group the President singled out.
Other provisions include restricting any bonus payments until Uncle Sam is repaid, eliminating golden parachutes to departing executives, requiring bonuses be paid back to the Treasury if misleading earnings or other financial information is reported, and a mandatory "Say on Pay" in which shareholders will vote annually to approve executive compensation at all companies receiving money from TARP.
Sliding Scale
At firms receiving less than $25 million in government rescue assistance, the limits would apply to the highest-paid employee. Those who get $25 million to $250 million would see limits applied to at least the five most highly compensated executives. That doubles to the 10 highest-paid for those receiving between $250 million and $500 million, and doubles again to the top 20 employees of any company (currently including most banks and insurer American International Group (AIG)) that receives $1 billion or more, though generally traders and investment bankers appear to be exempt.
According to Equilar, which tracks executive compensation, companies with $10 billion or more in assets that took taxpayer money from TARP paid their CEO an average of $11 million last year, including an average cash bonus of $2.5 million.
Groups in line with business thinking voiced relief at Congress' decision not to put the compensation ceiling at $400,000, including the Center on Executive Compensation, which quickly praised that move.
Will Top People Flee?
But pay consultants continue to fret that these moves will result in a damaging exodus of top banking talent. "The banks will be forced to choose between keeping their top talent and accepting the benefits of government funds," says David Wise, a pay consultant at Hay Group. "The focus of the banks will be on repaying the taxpayers as quickly as possible. But ultimately what's going to be in taxpayers' best interest is for these banks to perform over a long period." And that, he notes, is hard to do without top-notch people. "Some of the objectives feel right but implementation doesn't," he says.
Those pushing for restraints on executive pay liked the new restrictions, but still argue even these restrictions don't go far enough. "I am afraid that Congress missed a huge opportunity to protect taxpayers from further bailout profiteering," says Sarah Anderson, a pay expert at the Institute for Policy Studies. "The biggest weakness of the stimulus bill is that it fails to set a clear, measurable limit on all compensation. This opens the door for boards to shift compensation from bonuses to other pots, such as salary, pensions, deferred compensation, and perks."
Anderson and others will continue to beat the drum for more pay restrictions. The Institute for Policy Studies has already met with the Obama Administration about the President's promise to investigate executive pay. "We have a social responsibility in the United States to restrain excessive CEO pay," says Institute associate fellow Sam Pizzigati. "We don't depend on corporate boards to make sure companies don't dump toxic waste into our rivers, or to make sure employers don't discriminate against women or people of color. And we don't think we should rely on corporate boards to handle executive excesses."
Ex-Employees at Heart of Stanford Financial Probe
By Matthew Goldstein
Billionaire R. Allen Stanford's worst enemies may be some of the former employees who once worked for his $50 billion Stanford Financial Group.
For months now, securities regulators have interviewed dozens of former employees of Stanford Financial, trying to get to the bottom of the firm's staple investment product: a high-yielding certificate of deposit issued by Stanford's offshore banking affiliate in the Caribbean island nation of Antigua. Over the past 12 months, the stock market and hedge funds have lost huge amounts of value even as Houston-based Stanford Financial continued to pay out above-average returns
A number of former brokers that regulators are talking to are ones who previously filed industry arbitration claims, alleging that they were forced out of the fast-growing firm after questioning the ability of Stanford International Bank to justify those high CD rates. Indeed, it appears the firm had a habit of playing hardball with anyone who criticized the business model and took exception with its aggressive practice of selling CDs to wealthy investors in the U.S., the Caribbean, and Latin America. Several former brokers say they were often told to stop asking questions whenever they pressed for more information about the bank's investment strategy for the money it took in from depositors.
Lawsuit Alleged a "Ponzi scheme"
One former employee even went so far as to file a so-called private whistleblower lawsuit in 2006 against the 58-year-old Stanford and his firm. The lawsuit filed by Lawrence J. De Maria alleged a myriad of wrongdoing at Stanford Financial and its Antigua-based bank. De Maria, who had been hired in 2003 to edit the firm's internal corporate magazine, a glossy publication called Stanford Eagle, claimed he was fired "for objecting to and raising concerns" about the firm's practices that he believed "violated federal and state laws."
Specifically, De Maria, a former newspaper journalist, charged the firm "was operating a Ponzi scheme or pyramid scheme" by using money from the offshore bank "to finance its growing brokerage business." The lawsuit, filed in in 2006 in Miami-Dade County Circuit Court in Florida, also charged the firm was attracting clients to the bank by selling CDs with "artificially high yields." De Maria, also a former president of the Staten Island Chamber of Commerce in New York, said in his suit that the more questions he asked about the company's business practices, the more "marginalized" he became. De Maria was dismissed on Dec. 6, 2004.
Stanford and his firm vigorously litigated the lawsuit and denied the allegations. But on the eve of trial, the case settled on Dec. 12, 2007, for an undisclosed sum of money. The firm, which had not shown a willingness to settle the case, apparently became interested in resolving the matter after the judge gave De Maria's lawyer permission to depose Stanford. "Mr. Stanford was initially a party to the lawsuit, but he was dropped from the lawsuit by the plaintiff," says a firm spokesman, who also pointed out that De Maria was not involved with any financial activities at the firm. Dana Gallup, the Hollywood (Fla.)-based lawyer who represented De Maria, says both he and his client are barred from discussing the settlement.
SEC Investigation Goes Back Three Years
BusinessWeek previously reported that the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Florida Office of Financial Regulation all are investigating the high-yielding CDs sold by Stanford's offshore bank, as well as the investment strategy behind them. FINRA and Florida regulators began investigating Stanford Financial and its banks within the past several months. But people familiar with the probes say the SEC investigation goes back at least three years and possibly longer. A Stanford Financial spokesman, meanwhile, has characterized the investigations as "routine." The company also has said that former disgruntled employees are trying to fuel the investigations.
It's not clear if De Maria is one of the former employees that regulators have interviewed. But due diligence expert Randy Shain says De Maria's lawsuit was one of the many red flags that he turned up during an investigation of Stanford's bank that he did on behalf of a client. Shain, vice-president of First Advantage Investigative Services, says the client was considering investing some money in the CDs sold by Stanford bank. Shain says the allegations in the lawsuit mirrored too many of the concerns raised by other former employees of Stanford Financial. And that was enough, for him, to tell his client to consider putting his money elsewhere.
"There was a tremendous amount of people saying the same thing," says Shain. "This warranted our client taking a much closer look." It appears regulators are doing much the same themselves.
Billionaire R. Allen Stanford's worst enemies may be some of the former employees who once worked for his $50 billion Stanford Financial Group.
For months now, securities regulators have interviewed dozens of former employees of Stanford Financial, trying to get to the bottom of the firm's staple investment product: a high-yielding certificate of deposit issued by Stanford's offshore banking affiliate in the Caribbean island nation of Antigua. Over the past 12 months, the stock market and hedge funds have lost huge amounts of value even as Houston-based Stanford Financial continued to pay out above-average returns
A number of former brokers that regulators are talking to are ones who previously filed industry arbitration claims, alleging that they were forced out of the fast-growing firm after questioning the ability of Stanford International Bank to justify those high CD rates. Indeed, it appears the firm had a habit of playing hardball with anyone who criticized the business model and took exception with its aggressive practice of selling CDs to wealthy investors in the U.S., the Caribbean, and Latin America. Several former brokers say they were often told to stop asking questions whenever they pressed for more information about the bank's investment strategy for the money it took in from depositors.
Lawsuit Alleged a "Ponzi scheme"
One former employee even went so far as to file a so-called private whistleblower lawsuit in 2006 against the 58-year-old Stanford and his firm. The lawsuit filed by Lawrence J. De Maria alleged a myriad of wrongdoing at Stanford Financial and its Antigua-based bank. De Maria, who had been hired in 2003 to edit the firm's internal corporate magazine, a glossy publication called Stanford Eagle, claimed he was fired "for objecting to and raising concerns" about the firm's practices that he believed "violated federal and state laws."
Specifically, De Maria, a former newspaper journalist, charged the firm "was operating a Ponzi scheme or pyramid scheme" by using money from the offshore bank "to finance its growing brokerage business." The lawsuit, filed in in 2006 in Miami-Dade County Circuit Court in Florida, also charged the firm was attracting clients to the bank by selling CDs with "artificially high yields." De Maria, also a former president of the Staten Island Chamber of Commerce in New York, said in his suit that the more questions he asked about the company's business practices, the more "marginalized" he became. De Maria was dismissed on Dec. 6, 2004.
Stanford and his firm vigorously litigated the lawsuit and denied the allegations. But on the eve of trial, the case settled on Dec. 12, 2007, for an undisclosed sum of money. The firm, which had not shown a willingness to settle the case, apparently became interested in resolving the matter after the judge gave De Maria's lawyer permission to depose Stanford. "Mr. Stanford was initially a party to the lawsuit, but he was dropped from the lawsuit by the plaintiff," says a firm spokesman, who also pointed out that De Maria was not involved with any financial activities at the firm. Dana Gallup, the Hollywood (Fla.)-based lawyer who represented De Maria, says both he and his client are barred from discussing the settlement.
SEC Investigation Goes Back Three Years
BusinessWeek previously reported that the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Florida Office of Financial Regulation all are investigating the high-yielding CDs sold by Stanford's offshore bank, as well as the investment strategy behind them. FINRA and Florida regulators began investigating Stanford Financial and its banks within the past several months. But people familiar with the probes say the SEC investigation goes back at least three years and possibly longer. A Stanford Financial spokesman, meanwhile, has characterized the investigations as "routine." The company also has said that former disgruntled employees are trying to fuel the investigations.
It's not clear if De Maria is one of the former employees that regulators have interviewed. But due diligence expert Randy Shain says De Maria's lawsuit was one of the many red flags that he turned up during an investigation of Stanford's bank that he did on behalf of a client. Shain, vice-president of First Advantage Investigative Services, says the client was considering investing some money in the CDs sold by Stanford bank. Shain says the allegations in the lawsuit mirrored too many of the concerns raised by other former employees of Stanford Financial. And that was enough, for him, to tell his client to consider putting his money elsewhere.
"There was a tremendous amount of people saying the same thing," says Shain. "This warranted our client taking a much closer look." It appears regulators are doing much the same themselves.
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