Goldman, Bank Executives Tell Congress They Plan to Slash Pay
Goldman, Bank Executives Tell Congress They Plan to Slash Pay
By Ian Katz and Christine Harper
Nov. 13 (Bloomberg) — Goldman Sachs Group Inc. and the biggest U.S. banks, under pressure from Congress to justify their compensation after receiving cash injections from the government, said employees’ pay would be slashed this year.
Goldman’s payouts to employees will be “dramatically affected” by this year’s financial turmoil, Gregory Palm, a general counsel at Goldman, said today in prepared testimony before the Senate Banking Committee in Washington. JPMorgan Chase & Co. employees will make “substantially less” this year, the bank’s chief risk officer said. Bank of America Corp. said its bonus pool may be cut in half.
Goldman, which received $10 billion from the government’s plan to prop up the financial system, last year paid record bonuses to Chief Executive Officer Lloyd Blankfein and Co- Presidents Gary Cohn and Jon Winkelried, awarding more than $65 million to each after the company reported the biggest profits in Wall Street history. With revenue down 32 percent this year, money set aside for pay has been cut by the same amount.
Committee Chairman Christopher Dodd, a Connecticut Democrat, said banks receiving funds from the Treasury’s $700 billion rescue plan have an obligation to the public to help homeowners and the economy, not bolster compensation.
“Lenders who receive public funds should use those funds to lend,” Dodd said at the hearing, where executives from Charlotte, North Carolina-based Bank of America Corp. also spoke. “Many are failing to do so.”
Spending Limits
Lawmakers are urging greater oversight of the Treasury bailout, and Democrats including Senator Charles Schumer of New York are pressing to limit how banks spend the U.S. investments, including how they apply capital to employee bonuses or the acquisition of weaker institutions. Any mergers resulting from the bailout should be approved by Treasury, Schumer said today.
“The acceptance of public funding carries with it a public obligation,” Dodd said. “Until we solve the foreclosure problem, we will not have any hope of solving larger economic problems.”
Bank of America’s available pool for executive bonuses this year will be reduced by more than 50 percent, said Anne Finucane, global marketing and corporate affairs executive, in testifying to the committee.
JPMorgan’s $25 billion in federal aid is helping “to expand the flow of credit to creditworthy U.S. consumers and businesses on competitive terms and to work diligently to modify the terms of residential mortgages,” said Barry Zubrow, executive vice president and chief risk officer. Although JPMorgan didn’t ask for the U.S. aid, “we believe the program is well-conceived and support it.”
Wells Fargo
Wells Fargo & Co., the nation’s second-biggest bank by market value, won’t spend Treasury money on executive compensation, said Jon Campbell, regional banking president for the San Francisco-based lender. “Wells Fargo doesn’t need the government investment to pay for bonuses or compensation,” he said in prepared testimony.
Nine U.S. banks received $125 billion in government funds last month, and Citigroup Inc., Wells Fargo and JPMorgan Chase each received $25 billion. Bank of America and Merrill Lynch & Co., which is being acquired by Bank of America, also got $25 billion. Morgan Stanley and Goldman Sachs got $10 billion apiece.
Senior executives at the banks that received federal funds may have their pay slashed as much as 70 percent, according to a Nov. 6 report by Johnson Associates, a compensation consultant.
To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Christine Harper in New York at charper@bloomberg.net
Last Updated: November 13, 2008 13:32 EST