Citigroup may put more employees on commission or offer them larger base salaries as it tries to retain key staffers without running afoul of laws limiting executive pay at banks that receive government funds.
Three people familiar with the matter said the bank has examined a series of possible moves, including special stock-based bonuses, or offering employees a percentage of their group's revenue.
Banks across Wall Street are struggling to reward top performers without violating an amendment to the 2009 stimulus package limiting executive pay. That amendment calls for the Treasury Secetary to review compensation of top employees at any major recipient of funds from the government's Troubled Asset Relief Program.
Bonuses are expected to face particular scrutiny after Wall Street firms paid $18.4 billion of bonuses in 2008, a year in which the U.S. financial sector required more than $1 trillion of government support.
Some banks, most notably Goldman Sachs Group Inc, hope to repay their TARP funds as soon as possible, in part to avoid having to comply with pay limits.
Citigroup, which has received $45 billion of TARP capital and is not believed to have much hope of paying the government back anytime soon, is having discussions with the government about measures that might be appropriate for retaining revenue producing employees.
A number of possibilities are under discussion, and generally are geared toward ensuring that employees are motivated to perform well. The No. 3 U.S. bank will have a better sense of how to proceed once the Treasury Department crafts more specific guidelines on pay, one person said.
Of particular concern is the Phibro business, which has been extraordinarily profitable. If Citigroup cannot find ways to compensate people there, the energy trading business may be spun off, sold, or opened to outside investors, a person familiar with the matter said. News of this possibility was first reported in the Wall Street Journal.
The Wall Street Journal also reported that Citigroup had asked the Treasury Department for permission to pay special bonuses to key employees.
One scenario discussed internally would be a one-time bonus paid to employees mainly in stock that would vest over at least three years.
Citigroup spokesman Stephen Cohen said in an emailed statement that the bank has not presented Treasury with any specific plan for staff retention or special cash payouts.
"Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment," Cohen said in the statement.
The alternatives that Citigroup is considering to standard discretionary bonuses still have flaws with them, experts said.
Commissions, for example, only work well for professionals in sales positions, and even then can lead to conflicts over which sales person was responsible for a deal. Giving percentages of revenue could result in outsized paydays
if a business outperforms, which could lead to public outcry.
"There's no perfect answer to this issue," said Michael Holland, founder of Holland & Co, which oversees more than $4 billion.
STEMMING THE EXODUS
But banks have every incentive to figure out how to retain their top staff. On Monday, a source said two equity traders and a salesman from Bank of America Corp (BAC.N) moved to hedge fund giant Citadel Investment Group. Foreign banks such as Deutsche Bank (DBKGn.DE) have also been able to hire employees from U.S. competitors.
In fact, banks that are not profitable will likely have trouble from a political standpoint paying employees anything but stock in bonuses, while banks that are profitable will likely look to repay TARP as quickly as possible to eliminate restrictions they face.
"I just don't think all this planning for other ways to pay people will amount to anything," said Paul Sorbera, a recruiter at Alliance Consulting in New York.
But for now, banks are concerned about retaining staff, and ensuring they are properly motivated.
"If we can't pay people competitively, we can't expect them to stay here," said one bank executive.
Agencies
Showing posts with label Treasury Secretary. Show all posts
Showing posts with label Treasury Secretary. Show all posts
Tuesday, May 5, 2009
Tuesday, February 10, 2009
US Financial bailout may top $1 trillion
The Obama administration said Tuesday its new plan for rescuing America's crippled banking and financial sectors could top $1 trillion in a complex formula of cash infusions from government and the private sector.
Treasury Secretary Timothy Geithner revealed the massive rescue effort just hours after President Barack Obama said at his first White House news conference that Congress risked turning ``a crisis into a catastrophe'' if it fails to approve a separate $800-plus billion economic stimulus program. The plan has faced stiff opposition from Republican lawmakers.
The new financial bailout plan brought forward by Geithner grows out of a $700 billion rescue program put in place in October, under the Bush administration, as the depth of the country's critical financial sector troubles surfaced with a collapse of the housing market.
``Right now critical parts of our financial system are damaged,'' Geithner said in unveiling the new plan. ``Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change.''
Half of the bailout money was allocated by former President George W. Bush's administration, but that spending has come under heavy criticism for a lack of transparency and the failure of banks to put the money into the frozen credit market.
The second half of the $700 billion is now in the hands of the Obama administration, which plans to greatly expand the effort to unclog credit markets that provide loans to consumers and businesses. Funding for this effort would see a huge increase from $20 billion up to $100 billion, according to administration officials.
If a total of $100 billion from the bailout fund was used, it would be enough to support an additional $1 trillion in lending support through a Federal Reserve program that was announced in November but has yet to begin operations.
The administration also announced that the program would be expanded beyond consumer and small business loans to provide aid to the troubled commercial real estate sector.
The administration also announced a program to create a partnership between the government and the private sector to get private investors to buy bad assets that are currently weighing down the balance sheets of banks. Congressional aides who were briefed on this plan said that Treasury officials said it could involve between $250 billion and $500 billion in government support.
As Geithner put forward the new bailout package, the Senate, despite nearly unanimous Republican opposition, was expected to approve a $838 billion stimulus bill later Tuesday. Senate approval would set the stage for possibly contentious negotiations with the House on a final compromise on legislation. Congressional leaders hope to get the bill to Obama's desk in a few days.
Obama defended the stimulus plan in his press conference Monday night, saying the federal government ``is the only entity left with the resources to jolt our economy back to life.''
``The plan is not perfect,'' the president said. ``No plan is. I can't tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.''
Obama goes to Fort Myers, Florida, a metropolitan area among the hardest-hit by mortgage foreclosures, for another town-hall meeting Tuesday like the one he held Monday in Elkhart, Indiana, to promote his economic plan.
Just three weeks after his inauguration was celebrated jubilantly around the world, Obama has run into the jarring difficulties of governing. He failed to win over the Republicans he courted for his economic plan. Some of his supporters have wondered if he has yielded too much ground in the pursuit of bipartisanship.
Yet Obama's approval ratings remain high — 67 per cent according to a Gallup Organization poll released Monday. He is trying to tap into that popularity to win public and congressional support for his economic recovery plan as the country faces its worst economic crisis in 80 years.
``This is not your ordinary, run-of-the-mill recession,'' Obama said in his address Monday night, issuing a dire warning of the consequences if Congress fails to agree on a stimulus package. He cited Japan's failure to take bold actions in time to reverse a recession that turned the 1990s into a ``lost decade'' with no economic growth.
Despite painting a dire picture of the American economy, Obama said the US could well be in better shape by next year, as measured by increased hiring, lending, home values and other factors.
``If we get things right, then, starting next year, we can start seeing significant improvement,'' Obama said.
Agencies
Treasury Secretary Timothy Geithner revealed the massive rescue effort just hours after President Barack Obama said at his first White House news conference that Congress risked turning ``a crisis into a catastrophe'' if it fails to approve a separate $800-plus billion economic stimulus program. The plan has faced stiff opposition from Republican lawmakers.
The new financial bailout plan brought forward by Geithner grows out of a $700 billion rescue program put in place in October, under the Bush administration, as the depth of the country's critical financial sector troubles surfaced with a collapse of the housing market.
``Right now critical parts of our financial system are damaged,'' Geithner said in unveiling the new plan. ``Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change.''
Half of the bailout money was allocated by former President George W. Bush's administration, but that spending has come under heavy criticism for a lack of transparency and the failure of banks to put the money into the frozen credit market.
The second half of the $700 billion is now in the hands of the Obama administration, which plans to greatly expand the effort to unclog credit markets that provide loans to consumers and businesses. Funding for this effort would see a huge increase from $20 billion up to $100 billion, according to administration officials.
If a total of $100 billion from the bailout fund was used, it would be enough to support an additional $1 trillion in lending support through a Federal Reserve program that was announced in November but has yet to begin operations.
The administration also announced that the program would be expanded beyond consumer and small business loans to provide aid to the troubled commercial real estate sector.
The administration also announced a program to create a partnership between the government and the private sector to get private investors to buy bad assets that are currently weighing down the balance sheets of banks. Congressional aides who were briefed on this plan said that Treasury officials said it could involve between $250 billion and $500 billion in government support.
As Geithner put forward the new bailout package, the Senate, despite nearly unanimous Republican opposition, was expected to approve a $838 billion stimulus bill later Tuesday. Senate approval would set the stage for possibly contentious negotiations with the House on a final compromise on legislation. Congressional leaders hope to get the bill to Obama's desk in a few days.
Obama defended the stimulus plan in his press conference Monday night, saying the federal government ``is the only entity left with the resources to jolt our economy back to life.''
``The plan is not perfect,'' the president said. ``No plan is. I can't tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.''
Obama goes to Fort Myers, Florida, a metropolitan area among the hardest-hit by mortgage foreclosures, for another town-hall meeting Tuesday like the one he held Monday in Elkhart, Indiana, to promote his economic plan.
Just three weeks after his inauguration was celebrated jubilantly around the world, Obama has run into the jarring difficulties of governing. He failed to win over the Republicans he courted for his economic plan. Some of his supporters have wondered if he has yielded too much ground in the pursuit of bipartisanship.
Yet Obama's approval ratings remain high — 67 per cent according to a Gallup Organization poll released Monday. He is trying to tap into that popularity to win public and congressional support for his economic recovery plan as the country faces its worst economic crisis in 80 years.
``This is not your ordinary, run-of-the-mill recession,'' Obama said in his address Monday night, issuing a dire warning of the consequences if Congress fails to agree on a stimulus package. He cited Japan's failure to take bold actions in time to reverse a recession that turned the 1990s into a ``lost decade'' with no economic growth.
Despite painting a dire picture of the American economy, Obama said the US could well be in better shape by next year, as measured by increased hiring, lending, home values and other factors.
``If we get things right, then, starting next year, we can start seeing significant improvement,'' Obama said.
Agencies
Saturday, November 22, 2008
U.S. Government may rescue Citigroup
The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.
Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.
The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.
To read more...click on the link below
http://www.bloomberg.com/apps/news?pid=20601087&sid=acxKsnU5HOAI&refer=home
Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.
The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.
To read more...click on the link below
http://www.bloomberg.com/apps/news?pid=20601087&sid=acxKsnU5HOAI&refer=home
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