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Pay Still High at Bailed-Out Companies, Report Says

January 28, 2013 by Leave a Comment

WASHINGTON — Top executives at firms that received taxpayer bailouts during the financial crisis continue to receive generous government-approved compensation packages, a Treasury watchdog said in a report released on Monday.

The report comes from the special inspector general for the Troubled Asset Relief Program, the bank bailout law passed at the end of the George W. Bush administration. The watchdog, commonly called Sigtarp, found that 68 out of 69 executives at Ally Financial, the American International Group and General Motors received annual compensation of $1 million or more, with the Treasury’s signoff.

All but one of the top executives at the failed insurer A.I.G. — which required more than $180 billion in emergency taxpayer financing — received pay packages worth more than $2 million. And 16 top executives at the three firms earned combined pay of more than $100 million.

“In 2012, these three TARP companies convinced Treasury to roll back its guidelines by approving multimillion-dollar pay packages, high cash salaries, huge pay raises and removing compensation tied to meeting performance metrics,” Christy Romero, the special inspector general, said in a statement. “Treasury cannot look out for taxpayers’ interests if it continues to rely to a great extent on the pay proposed by companies that have historically pushed back on pay limits.”

The report charges that Treasury has failed to rein in excessive pay at the three firms. It found that Treasury approved all pay raises requested for A.I.G., Ally and General Motors executives last year, with individual compensation increases of $30,000 to $1 million. It also faults the Treasury overseer for allowing pay packages above what comparable executives at other firms receive.

The report also accuses Treasury of failing to follow up earlier recommendations made by the special inspector general. A report issued a year ago made many similar criticisms, arguing that the Treasury officials “could not effectively rein in excessive compensation” because the most “important goal was to get the companies to repay” the government.

“Treasury made no meaningful reform to its processes,” it said in this year’s report. “Lacking criteria and an effective decision-making process, Treasury risks continuing to award executives of bailed-out companies excessive cash compensation without good cause.”

In a response letter included in the report, Patricia Geoghegan, acting special master for TARP executive compensation, disputed several of its assertions. For one, the compensation packages for A.I.G. and General Motors executives were comparable to those received by executives at other firms, Treasury said. Pay packages at Ally were higher than the median because of “unique circumstances,” it said.

Treasury also noted that the Obama administration had cut pay for executives at bailed-out firms and required that the companies pay top employees with more stock and less cash. Treasury “continues to fulfill its regulatory requirements,” the letter said. It has “limited executive compensation while at the same time keeping compensation at levels that enable the ‘exceptional assistance’ recipients to remain competitive and repay Tarp assistance.”

The Treasury is selling off its remaining shares of General Motors. In December, Treasury sold its final shares in A.I.G., bringing its and the Federal Reserve’s total profit on its investment in the company to nearly $23 billion.

Article source: http://www.nytimes.com/2013/01/29/business/generous-executive-pay-at-bailed-out-companies-treasury-watchdog-says.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

TARP Paid Millions in Unsupported Legal Fees, Report Says

September 30, 2011 by Leave a Comment

The special inspector general for the Troubled Asset Relief Program said auditors questioned $8.1 million of a sampling of $9.1 million in bills from four law firms paid by Treasury’s Office of Financial Stability.

The firms submitted bills with either no descriptions or vague descriptions of the work performed, unsupported expense charges and administrative charges that were not allowed under their contract, the inspector general’s report said.

The most striking examples of problematic bills were from Simpson Thacher Bartlett, the report said.

“Simpson Thacher billed O.F.S. $5.8 million in fees and expenses with bills that provided no detail whatsoever as to the work performed,” the report said.

Later, however, the report mentions that Simpson Thacher provided corporate law advice related to bank bailout investments and the sale of Citigroup stock.

In a statement that made no direct reference to the report, Simpson Thacher said “Our team of highly qualified lawyers worked closely with the Treasury staff on a daily basis to structure and implement TARP programs that played a key role in stabilizing the U.S. financial system.”

The watchdog, which investigates waste and fraud in the bailout program, also examined bills from Cadwalader Wickersham Taft, Locke Lord Bissell Liddell and Bingham McCutchen, formerly McKee Nelson L.L.P.

The report said that although auditors questioned bills from all of the law firms, it did not mean that all of the fees and expenses were unreasonable.

“These services were of high quality and critical to the success of our programs,” a Treasury Department spokesman, Mark Paustenbach, said. “We believe the procedures we followed ensured that taxpayers received good value.”

As of March, the office that runs the relief program had paid the four firms legal fees and expenses totaling more than $25.5 million, the audit said.

“O.F.S. should determine the allowability of $7,980,215 in unsupported legal fees and expenses paid to the law firms,” it concluded.

The report also recommended that Treasury try to recover $91,482 in “ineligible” fees and expenses paid to Simpson Thacher.

But the report did not question the quality of legal work done by the firms and noted that Treasury had negotiated billing rates equal to or lower than those obtained by other federal agencies and substantially lower than the respective firms’ standard rates.

Article source: http://feeds.nytimes.com/click.phdo?i=228912aa31dd4e6681c80c8fd872f0f3

Filed Under: Business News Tagged With: , ,

Big Banks Penalized for Performance In Mortgage Modification Program

June 10, 2011 by Leave a Comment

As part of a new assessment of mortgage servicers, Treasury officials said they would withhold incentive payments for the three banks — Bank of America, JPMorgan Chase and Wells Fargo — until the problems are resolved. At that point, those payments would be made, a Treasury spokeswoman said.

In May, the three banks received $24 million in incentives as part of the modification program.

The Treasury Department has previously withheld payments from mortgage servicers, but Thursday’s action focused on some of the biggest players in the program. Called the Home Affordable Modification Program, or HAMP, it is voluntary for mortgage servicers. Nearly all of the nation’s largest banks have signed contracts to participate.

The Obama administration has long been criticized as being too easy on the mortgage servicers, and Thursday’s announcement did little to quiet that criticism.

Neil M. Barofsky, who resigned in March as special inspector general for the bank bailout, described the assessments and penalties as a “lost opportunity” to hold lenders more accountable.

“It further reaffirms Treasury’s long-running toothless response to the servicers’ disregard of their contract with Treasury, and by extension, the American taxpayer,” Mr. Barofsky said in an e-mail.

Timothy G. Massad, assistant Treasury secretary, defended the approach. He said the assessments of banks and other mortgage servicers “will serve to keep the pressure on servicers to more effectively assist struggling families.”

“We need servicers to step up their performance to meet the needs of those still struggling,” he said in a statement.

The mortgage servicers were evaluated on a scale of one to three stars during the first quarter on whether they had identified and searched for eligible homeowners; assessed homeowners’ eligibility correctly; and maintained effective program management, governance and reporting. Bank of America received the lowest grade, one star, on four of seven areas that were evaluated; Wells received one star in three areas; and Chase, in one.

A fourth mortgage servicer, Ocwen Loan Service, was also assessed as needing substantial improvement, but Treasury said it would not withhold payments to Ocwen because it was negatively affected by a large acquisition of mortgages to service.

Six other mortgage servicers were graded as needing moderate improvement. There were no servicers deemed as needing only minor improvement.

Wells Fargo issued a statement saying it was “formally disputing” the Treasury’s findings.

“It paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury,” said spokeswoman Vickee J. Adams, who said the criticisms were dated and did not reflect recent improvements.

Chase said it too had made significant improvements. “The bank respectfully disagrees with the assessment,” the company said in a statement.

Dan B. Frahm, a spokesman for Bank of America, said that the bank was “committed to continually improving our processes to assist distressed homeowners” through the federal modification program and its own internal program. But he added, “We acknowledge improvements must be made in key areas, particularly those affecting the customer experience.”

The modification program was created using $50 billion that was set aside from the bank bailout to help distressed homeowners. The idea was that the Treasury Department would provide incentives to mortgage servicers and investors to modify mortgages for struggling homeowners, rather than foreclose on them.

The administration predicted that three million to four million Americans would benefit, but so far, only 699,053 permanent modifications have been started.

To date, Treasury has spent about $1.34 billion on HAMP. One problem was that the mortgage servicers, at least initially, were not prepared to handle the onslaught of modifications, and homeowners complained that paperwork had been routinely lost and trial modifications had dragged on for months.

Article source: http://feeds.nytimes.com/click.phdo?i=c65c3a578a64bfc29284cfa8d9b41069

Filed Under: Business News Tagged With: , ,