What They Got Away With
Chief executives at big banks take on big risks, and for that, they are paid millions. But what happens when the risks don't pay off? Should CEOs still get to walk away from the wreckage with gilded severance packages while employees lumber off with boxes and broken dreams? Don't taxpayers deserve a refund of multi-million-dollar payouts for paying billions to bail out these firms? Almost all these CEOs say no, but lately, Congress and federal regulators seems to be saying yes. Some compensation has been cut, and some could be capped under proposed regulations. Some ex-CEOs may face fraud charges, and a few have been hauled before Congress--such as those at AIG, which was lambasted by lawmakers for sending executives to a $440,000 junket after getting an $85 billion government bailout. Despite all this scrutiny, plenty of chiefs are still walking away with mountains of money. A look at some of these golden parachuters.
Chairman and Chief Executive
Company: General Motors
On his watch: GM built its identity and best-selling brand around gas-guzzling sport utility vehicles, which quickly fell out of fashion once the recession began and consumer spending dropped. By December 2008, sales plummeted and according to The New York Times, GM’s cash reserves were falling $2 billion a month. Wagoner insisted that a government bailout was essential to the auto manufacturer’s survival. It didn’t help that Wagoner arrived in Washington, D.C. in a private corporate jet. In the weeks that followed, the Obama administration rejected Wagoner’s plan and pushed him out of the company in March 2009. The company filed for bankruptcy in June of that year, but has rebounded with the help of taxpayer dollars. GM raked in $13 billion in earnings between 2009 and 2012, but in 2011 paid not a dime in federal income tax.
Payout: $8.2 million over five years; $74,030 per year until he dies; a life insurance policy of $2.6 million
Company: Countrywide Financial
On his watch: The founder of the ill-fated mortgage giant, Angelo Mozilo was at the helm during the subprime fiasco that led to the broader credit crisis. Mozilo swore Countrywide would ride out the turmoil and emerge bigger than ever. Instead, he cashed out his stock options as Countrywide headed into a nosedive in 2008; the company’s worth shrunk from about $25 billion to $2.5 billion. In 2010, Mozilo was smacked with the Security and Exchange Commission’s heftiest fine to that date: $45 million for ill-gotten gains and an additional $22.5 million to settle SEC charges that he and two other Countrywide executives misled investors. Countrywide paid $20 million of the fine thanks to Mozilo’s indemnification agreement.
Payout: Mozilo gave up $36.4 million in severance pay, but walked away with $121.5 million in stock gains before the SEC charges and disgorgements.
Company: Merrill Lynch
On his watch: Shortly before his ouster in October 2007, Merrill reported $7.9 billion in write-downs related to O’Neal’s blundering forays into risky subprime-mortgage territory. O’Neal had snatched up subprime lender First Financial in late 2006, a move Portfoliomagazine has likened to having “all the strategic wisdom of a foray into Havana real estate in 1959.” Merrill’s write-downs climbed to $45 billion in 2008.
Payout: $161.5 million
Company: Merrill Lynch
On his watch: In O’Neal’s messy wake, Merrill tapped Thain, then head of the New York Stock Exchange, to help right the firm in November 2007, but Merrill continued to slide. On September 15, 2008 – an hour before Lehman Brothers filed for bankruptcy – Merrill agreed to a merger with Bank of America rather than meet a similar fate. In December 2008, the Wall Street Journal reported that Thain was seeking a $10 million bonus from Merrill (The New York Times later reported Thain demanded as much as $40 million.) The Journalalleged Thain’s rationale was that he had helped avert a crisis that could have been worse for the company. Merrill promptly issued a statement saying Thain and other top executives would not receive bonuses. But Thain’s controversial ways continued to get attention. According to The Daily Beast, Thain spent $1.22 million on a renovation of his own office in 2008. Line items included an $87,000 rug and $800,000 in interior design fees. The remodel took place even a Merrill was slashing expenses and laying off workers. After the merger with Bank of America, Thain was to be put in charge of the bank’s trading and investment banking operations, but resigned on January 22, 2009.
Payout: No final bonus. On January 26, 2009 the New York State Attorney General’s Office subpoenaed the former executive to answer questions about the approval of $4 billion in bonuses given out before the Bank of America merger. Thain is currently chief at bank holding company CIT Group, where he makes a base salary of $6 million annually.
Company: Goldman Sachs
On his watch: Golden Goldman has always been heralded for managing risk better than other banks. But perhaps they weren’t so prudent; when AIG revealed the beneficiaries of its TARP money in 2009, Goldman Sachs was on the list. The bank received more than $13 billion from the Federal Reserve, via different deals with AIG. Meanwhile, Blankfein – the Bronx-born CEO is consistently ranked one of the highest paid on the Street – refused his own 2008 bonus, while continuing to offer pay-outs to more than 440 partners, all of whom he argues deserve their bonuses to protect Goldman from other banks poaching Blankfein’s staff.
Payout: None for Blankfein, but his partners stood to profit from Goldman’s influx of $13 billion in taxpayer funds. Goldman is a major Obama funder, and Blankfein is reported to have visited the White House more than a dozen times.
Edward Liddy, Robert Willumstad, Martin Sullivan, Maurice (Hank) Greenberg
Company: American International Group (AIG), world's largest insurance firm
On their watch: In Willumstad’s brief tenure, AIG stock plunged from around $27 a share to $2 a share, and the ailing firm agreed to an $85 billion government bailout. Sullivan left after two quarters of record losses and $20 billion in subprime-mortgage-related losses. Greenberg was credited with shaping AIG into the world’s largest insurer but was forced out in 2005 due to a fraud investigation. No charges were filed against him. In March 2009, AIG revealed the beneficiaries of its TARP money, many of whom were other Wall Street banks. Even more odious was news that the company’s CEO Edward Liddy still planned on offering bonuses to top execs, using the tax payer funds.
Payout: Willumstad refused a $22 million severance package, the Wall Street Journal reported on Sept. 21, 2008 (previous reports put his payout deal at $7 million). Sullivan received $47 million, and for Greenberg, despite the investigation, a 12 percent stake in AIG. That stake, however, isn’t worth what it once was. After the government bailout, Greenberg’s $3 billion interest nearly disappeared, and he dropped off the Forbes list of the richest people in the world.
On his watch: Before he stepped down in November 2007, Citigroup, the world's largest bank, reported a 57 percent drop in quarterly earnings and lost nearly a quarter of its market value. "It is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as chief executive officer is to step down," he said.
Payout: $68 million
Company: Lehman Brothers
On his watch: The firm declared bankruptcy on Sept. 15. In April he proclaimed to shareholders that "the worst is behind us," but for months he had dodged queries about the firm's exposure to toxic subprime debt.
Payout: $22 million
Kerry K. Killinger
Company: Washington Mutual
On his watch: As CEO since the early 1990s, Killinger oversaw the acquisition of a slew of credit and mortgage providers that have since headed south. More than half of WaMu's loans were tied up in the riskiest types of loans, leading it to post a $3.3 billion loss for the second quarter alone in July 2008. At its peak in 2006, the company was worth about $44 billion. By mid-2008 it was worth less than $5 billion. Killinger was ousted as CEO on Sept. 7 of that year.
Payout: Up to $22 million