Bank of America (BoA) is considering paying off a $20 billion (£12.4 billion) chunk of the $45 billion that it took from the US Government’s Troubled Asset Relief Programme (Tarp), raising the possibility that the bank will shake off the attentions of the Obama Administration’s new pay czar.
The biggest American bank is also discussing with the US Treasury a fee of as much as $500 million to cancel a government guarantee on $118 billion of the bank’s assets.
BoA’s negotiations come as Kenneth Feinberg, appointed in June as the Special Master for Tarp Executive Compensation, pores over the pay plans of seven companies considered by Washington to have received exceptional aid from taxpayers. Mr Feinberg, commonly referred to as the pay czar, has the power to veto compensation proposals submitted to him last month by the seven companies.
BoA became an exceptional aid recipient in January when it took $20 billion from the Tarp to help to absorb a $15.8 billion fourth-quarter loss at Merrill Lynch, the investment bank that it rescued from collapse last September. BoA had already taken a $25 billion Tarp bailout alongside other banks during the Treasury’s initial attempt last year to prop up the American banking sector.
Officials from BoA and the Treasury declined to comment yesterday.
Advertisement
The bank is thought to have offered to repay $20 billion of the $45 billion that it owes to US taxpayers. However, it is not clear whether this would allow the bank to escape Mr Feinberg’s attentions or whether the Treasury expected BoA to repay its full bailout before restrictions on its compensation are loosened.
The pay czar is considering BoA’s 2009 pay plans for its five most senior executives and 20 best-paid employees. Compensation is particularly sensitive for the bank because it fears losing Merrill Lynch bankers, who are disgruntled over the possibility of reduced compensation and fewer deals under the ownership of BoA, which is not as well known for its investment banking expertise.
A recent investigation by Andrew Cuomo, the New York attorneygeneral, revealed that Merrill Lynch had paid 149 bankers $3 million or more in salary and bonuses in 2008, despite making a $27.6 billion loss. BoA paid 28 bankers $3 million or more, although it made a $4 billion profit in the same period.
Thomas Montag, the recently appointed head of corporate and investment banking at BoA, is thought to have taken special pains to reassure employees at Merrill Lynch in London that he is committed to the business.
Andrea Orcel, Merrill Lynch’s most senior dealmaker and one of its best-paid executives — he had a reported $33.8 million pay package last year — is based in London. His role at the bank is likely to be addressed when Mr Montag, who was promoted to run the investment bank last month, announces his management team in the coming weeks.
Advertisement
BoA is also discussing with the US Treasury how it might cancel a guarantee agreed in January, under which the bank promised to absorb the first $10 billion of losses on a $118 billion portfolio of risky assets and the Government would cover 90 per cent of losses on top of that.
The Government wants a fee of up to $500 million for providing the guarantee. BoA apparently balked at the size of the fee but now is considering making the payment.
BoA’s well-paid London bankers are coming under scrutiny in both the United States and Britain. Gordon Brown said that countries that attend the G20 meeting in Pittsburgh, Pennsylvania, this month would debate whether “bonuses are, in general, too high a proportion of company revenues and profits”.
Bank account:
$45bn Tarp funding received by Bank of America
Advertisement
$500m Fee that BoA may have to pay to cancel a US Government guarantee on $118bn of its assets
$2.42bn BoA profit in the second quarter
$154bn Market value of BoA, whose shares are up 26 per cent this year
Source: Times research