Taxpayer financed signing bonuses…
While there’s been no shortgage of stories that question exactly what banks that receive money under the Treasury’s TARP program plan to do with that money, tracking down the details are a lot more difficult. In part, that’s because the Treasury department’s own website is an embarrassment that makes anyone trying to practice oversight, like my friends at bailoutsleuth.com, an exercise in extreme frustration. As the WSJ noted on Tuesday, Treasury’s most recent progress report on Tuesday didn’t even provide a running total on how much money has been handed out so far — a not-so-minor detail.
Given this, it’s easy to see how potentially embarrassing details at individual banks receiving TARP money can easily slip through the cracks, like this 8K filed by Hampton Roads Bankshares (HMPR) late yesterday. In the filing, the company notes that two executives of Gateway Financial (old ticker: GBTS), which Hampton announced it was acquiring for around $101 million on Sept. 24, received hefty bonuses for entering into new employment agreements with Hampton. Former Gateway Chairman and CEO D. Ben Berry got a $500K “for entering into the covenant” (hmmm….almost sounds like a religious order) and David Twiddy got $425K for entering into his covenant.
On Dec. 31, Hampton Roads announced that it had received $80.3 million under the TARP program. In the release, Hampton Roads Chairman and CEO Jack Gibson said, “The investment by the U. S. Treasury will ensure that we can fully meet the competitive challenges presented by the current economy and maintain leadership in all of our banking markets for the benefit of our shareholders, customers and employees.”
Keep in mind that the announcement of TARP money came on the very same day that Mssrs. Berry and Twiddy were signing the papers that would allow them to collect $925K simply for entering into new employment agreements. The two agreements also provide for other perks including something called “perpetual family medical insurance” — lifetime health, dental and life insurance for Berry and his spouse. Another curious detail about this whole thing is that a quick skim of the S-4 that Hampton Roads filed on Nov. 14 doesn’t provide details on how much the two Gateway executives received as a result of the merger.
Now, this is just one example at a relatively small bank. What would it take to go through the list of the nearly 300 banks that have received TARP funds, look at various employment contracts in the SEC filings and figure out how much of the TARP money is going toward signing bonuses, country club memberships (that’s in Berry’s contract too) and lifetime health insurance? Given the amount of money involved, it certainly seems like a worthwhile project to pursue.
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Posted in Tags: 8Ks, M&A, TARP |
 12 Comments » |
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January 8th, 2009 at 12:02 pm
Great stuff. Your due diligence is much appreciated. This is the kind of information that should be showing up on the front pages of all the major news sites.
You should consider placing social bookmarking and social networking buttons on your site (e.g. digg, stumbleupon, yahoo buzz, etc.) You could even utilize twitter to broaden influence. This is the type of information that really should go viral.
The public needs to be in the loop on this information. If there is an outcry, then something might actually be done.
How great would it be if social media ends up being a tool for the public to leverage their votes to influence reform?
January 8th, 2009 at 12:35 pm
@ taxpayer: Not sure how you’re accessing footnoted content, but there are links to most of the major Social Networking platforms at the bottom of the post. I’ll need to work on adding those to both the email and RSS feeds and appreciate the suggestion.
I’ve also recently jumped into twitter @footnoted for those who are interested. I haven’t made a formal announcement on the site because I’m still trying to figure out how to use Twitter effectively, as opposed to just another way to waste time online. Can’t tell you how many posts I’ve seen about what people are eating/drinking, or what their kids are doing, which seems like a case of TMI to me. But I’m still trying to get used to it and will give it some more time.
January 8th, 2009 at 1:06 pm
Seeing how the amount of the bonuses paid amounted to about 1.15% of the money they received and that the bank must pay 5% annually on the TARP money, I will argue that the government will be paid back the “bonus money” within a year and will make a 4% profit off of lending that money to the bank.
I don’t see this as that big of a deal, especially when it’s in conjunction with an acquistion thatincreases the acquirer’s deposits, which in turn will allow the acquirer to make more loans. After all, isn’t everyone screaming that the banks aren’t making enough loans right now?
January 8th, 2009 at 5:25 pm
Thanks Michelle,
Thats odd that I don’t see any social bookmark buttons (I tried firefox, IE, and Chrome).
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@ T:
The fact that government gets paid interest puts me more at ease. I still don’t think these executives should be getting the money and benefits that they are getting.
These gateway execs aren’t exactly leading their company to new heights. More importantly, paying them handsomely for doing nothing is exploiting the TARP. Like Michelle was saying, “how much of the TARP money is going toward signing bonuses[?]” I don’t see how padding Ben Berry’s wallet and David Twiddy’s wallets will increase liquidity in the markets.
As mentioned in the article:
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Hampton Roads Chairman and CEO Jack Gibson said, “The investment by the U. S. Treasury will ensure that we can fully meet the competitive challenges presented by the current economy and maintain leadership in all of our banking markets for the benefit of our shareholders, customers and employees.”
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I just don’t see how lifetime health insurance and country club memberships + 500K all factor into the TARP.
January 8th, 2009 at 10:10 pm
I guess there is no end to the corruption of the Bush Administration, willing to give out funds without strict assurances about it’s use. Throw some of these corporate officers into jail for a year or so and we might see a reduction of this kind of chutzpah.
Are we really really really sure that Obama can’t start early?
January 9th, 2009 at 9:42 am
If you think that banks are taking TARP money and then just giving it away to their execs you are dead wrong. Banks are under pressure to be “well capitalized” and until they are finished with write-downs they must preserve capital. Once the write down storm has subsided and banks get more color on the accounting treatment of loans you will see things to open up a bit. That said, regardless if the banks get money or not, there is still the issue of credit quality regarding who they loan to. If this mess, at it’s basic level, started because of loans made to less-than-creditworthy borrowers, then what good will it do to take money borrowed (not given) from the government and start that cycle over again?
There is a chicken and egg argument here: do businesses and consumers become more creditworthy after they get the loan or should they be more creditworthy before they get the loan?
There is no “corruption” with the TARP program. Is it perfect? No, but it sures beats the alternative of doing nothing and since the program was initiated it has prevented a slew of bank failures. Blaming the Bush Administration for everything is a cheap cop out for people who don’t understand what is really going on.
IMO, the biggest flaw of this program is letting anyone become bank holding companies. What we don’t need right now is more banks, especially new banks formed by companies who are just trying to access the TARP money. Now they have to convert to a bank and that brings on a whole set of challenges they have never had to face before.
Also, let me repeat that these banks have to pay 5% annually on the money borrowed and must have principal returned within 5 years or that rate goes up to 9% (I think). If every bank returns the money in 5 years (big assumption) then the government stands to make over $50 Billion.
January 9th, 2009 at 12:08 pm
Good post T. Most people don’t understand that the reason banks are in such trouble is the money they lent out to “everyone” trying to be PC has put them in a pickle. Poor GAAP accounting rules then force them to take non-cash writedowns on securities due to an illiquid market. You have a 1-2 punch to capital, so what is a bank going to do when they get new capital? Horde it of course until the market correction subsides. They’re not going to turn right around and do more of the same that got them into this mess.
I guess you could be a Weiner like BD and blame Bush for everything, but even the mighty Obama is not going to be able to get banks to lend until credit worthy borrowers are demanding money. Common sense folks….common sense.
Posted by a greedy banker…
January 9th, 2009 at 12:27 pm
I’m not quite sure how a discussion about lack of transparency for a $350 billion giveaway turned into a political discussion with the usual conservative (and liberal) talking points. The whole point of this post is that there’s not enough transparency when it comes to TARP and that people need to be paying closer attention. And, judging by this article I’m not the only one who thinks so.
In the greater scheme of things, the $925K is a fraction of the $80 million that Hampton rec’d. But my question is why are these two execs getting bonuses at all just for signing their names?
January 9th, 2009 at 3:03 pm
Because signing bonuses are the norm in many industries. I got one coming out of school. Professional athletes get them, doctors, lawyers, etc. It’s a way to attract “talent” although in times like this it may seem misguided because where else can people go for work?
My worry about people wanting more transparency is that Congress and others will try to meddle even more in the affairs of the companies with TARP money. As the hearings showed, Congress has very little clue to how the banking world works so the last thing we need is them poking and prodding around in every bank trying to set limits to this and that. Moreover, the restrictions they want on some of these companies are getting absurd. Limiting CEO compensation, no bonuses for Top 25 execs, more transparency for what they are doing with the money??? If it’s a public company then the voting shareholders (preferred don’t get votes) should put a board they want in place, which will put a compensation committee in place, which will then limit executive compensation.
I’m all for protecting the taxpayer but let’s be honest, the taxpayers are going to make a handsome killing off of this deal. Maybe the taxpayers should be more concerned with what will happen to those profits once they get in the hands of Congress (raises for Congress, anyone?) instead of what banks are doing with it in order to survive.
January 12th, 2009 at 9:20 am
T -you are right that perhaps the money should not be given out again in bad loans, but how is flat out giving it away a better option? 1 million given away to execs in unnecessary bonuses (where are they going to go? and if they did-hire someone else) is a worse risk than loaning it to a business that has a 20% possibility to repay. At least there is some chance the money will come back!
January 12th, 2009 at 10:27 am
@T
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“Because signing bonuses are the norm in many industries. I got one coming out of school. Professional athletes get them, doctors, lawyers, etc. It’s a way to attract “talent” although in times like this it may seem misguided because where else can people go for work?”
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Just because something is the norm doesn’t mean it’s a good reason. I also disagree that executive compensation is a way to extract talent. Perhaps to some degree it works, but at some point shareholders deserve results. Dishing out 925K to Gateway execs for a job well done? I didn’t even know that Gateway still existed until i read this article (They make computers right?) If the shareholders are ok with paying them 925k then let them pay. Don’t exploit the TARP and use taxpayers money.
I like how you used professional atheletes as an example. Just look at Major League Baseball. There are several players being payed huge amounts of money, yet all they do is underperform (e.g. Barry Zito). There simply is no justification for the ROI. I think executives much like players in MLB have too much leverage in terms of their compensation. The people doing the hiring should have some way to hedge against lack of performance.
Looks like congress is well aware of this issue:
http://news.yahoo.com/s/nm/20090112/bs_nm/us_usa_banking_tarp
http://news.yahoo.com/s/nm/20090112/bs_nm/us_usa_banking_tarp
January 12th, 2009 at 11:52 am
From FDIC this morning:
http://www.fdic.gov/news/news/financial/2009/fil09001.html
State nonmember institutions should implement a process to monitor their use of capital injections, liquidity support and/or financing guarantees obtained through recent financial stability programs established by Department of the Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. In particular, the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures. The FDIC encourages institutions to include a summary of this information in shareholder and public reports, annual reports and financial statements, as applicable.