By William Patalon III
Money Morning/The Money Map Report
Citigroup Inc. (C) Chief Executive Officer Vikram Pandit and Chairman Winfried Bischoff will forgo 2008 bonuses after the bank lost three-quarters of its market value and got a $45 billion U.S. bailout, Pandit said in a memo to employees.
Robert E. Rubin, the former U.S. Treasury secretary who serves as an adviser to the New York-based company, declined a bonus for a second straight year, said the memo sent to Bloomberg News by Citigroup spokesman Michael Hanretta. According to Bloomberg, senior leadership committee members will get smaller awards than last year.
“The harsh realities of 2008, primarily our earnings results, mean that our bonus pool is dramatically lower,” Pandit said in the memo.
Year-end bonuses, which typically account for about two-thirds of Wall Street compensation, are being cut this year after the U.S. government rolled out a $700 billion banking bailout plan – which has conditions attached – and after banks and brokerage houses racked up more than $1 trillion of losses worldwide since 2007. CEOs Lloyd C. Blankfein of Goldman Sachs Group Inc. (GS) and John J. Mack of Morgan Stanley (MS) are among executives not getting bonuses, Bloomberg reported.
Goldman’s Blankfein took home nearly $54 million in compensation in 2007. The company’s top five executives received a total of $242 million. On Oct. 28, Goldman received $10 billion in federal bailout money. On Dec. 16, Goldman reported a $2.12 billion quarterly loss, its first since it went public back in 1999. So for 2008, Goldman’s seven top-paid execs will work for their base salaries of $600,000 each, but will forgo any cash and stock bonuses, the company said.
The 116 banks that are receiving billions in taxpayer-provided bailout money this year actually paid out $1.6 billion in compensation and benefits to their top executives last year – even though the results at some of these institutions were so poor that they would soon have to turn to Washington for a government-engineered rescue, investigations by Money Morning and The Associated Press both show.
The $1.6 billion was paid out to nearly 600 executives at the 116 banks that have so far accepted federal money to bolster their financial foundations, The Associated Press concluded after a review of U.S. securities filings. In addition to salary, the compensation included bonuses paid in both cash and stock. The benefits reaped by top executives included the use of company jets for personal purposes, personal chauffeurs, home-security services, country-club memberships and professional-wealth-management services, the news service said.
U.S. Rep. Barney Frank, D-Mass., a longtime critic of the fat pay packages given to U.S. executives, said the bonuses and perks tallied by The AP review amounted to a bribe paid “to get [CEOs] to do the jobs for which they are well paid in the first place.”
“Most of us sign on to do jobs and we do them best we can," Frank, chairman of the House Financial Services committee, told the news service. But "we’re told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"
The new attitude on bonuses isn’t limited to financial-services companies. Just before Christmas, in fact, U.S. heavy-equipment giant Caterpillar Inc. (CAT) announced , because of weakening global demand.
But many of the financial-service firms are being forced to cut executive compensation as part of a deal that brought them federal bailout funds. Citigroup, the biggest recipient of U.S. bailout funds, completed an agreement for a $20 billion government investment, Pandit said in the memo. That was on top of an earlier $25 billion and a U.S. guarantee on $306 billion in troubled assets.
Pandit is cutting 52,000 jobs worldwide after four straight quarters of losses tied to bad loans and failed investments, and said in the memo that Citi expects “major challenges” to continue into the New Year.
The bank will institute a “clawback” policy to recoup executive compensation based on financial reporting that is later shown to be inaccurate, Pandit said. Even exit pay will be restricted and “the five senior executives whose compensation is listed in our proxy statement no longer can receive severance,” said Pandit, who became Citigroup CEO in December 2007. Those affected executives are Pandit, Bischoff, Chief Financial Officer Gary Crittenden and Vice Chairmen Lewis Kaden and Stephen Volk, Citi spokesman Hanretta told Bloomberg in an e-mail.
Pandit, 51, received 1 million shares from Citigroup as part of a “sign-on” bonus in January, in addition to a $2.5 million “retention equity award,” the company said in March. He was paid $250,000 in salary in 2007.
Pandit got $165 million from Citigroup in 2007 when he sold Old Lane Partners LP, the hedge fund he co-founded and ran. Citigroup closed New York-based Old Lane in June and took a $202 million write-down on its $800 million investment.
Citigroup shares ended the year at $6.71. They traded as high as $29.89 in the last 52 weeks.
News and Related Story Links:
Citigroup CEO Pandit, Chairman Bischoff Forgo Bonuses.
Money Morning Banking Bailout Investigation:
Banks That Got $188 Billion in Bailout Money This Year Paid Out $1.6 Billion to Top Execs Last Year.
Money Morning News:
U.S. CEOs Could Learn From Their Asian Counterparts.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.