Banks Mum on How They Are Using TARP Cash
By Charles Herman, Dan Arnall, Lauren Pearle and Zunaira Zaki
Dec. 17, 2008— Banks that were rescued with billions of dollars in public fundshave, in most cases, refused to provide specifics about how they have used or intend to use the money.
ABC News asked 16 of the banks that have received money from the Treasury Department's $700 billion Trouble Asset Relief Program the same two questions: How has your firm used the money and how much has your firm allocated to bonuses and incentives this year.
Goldman Sachs reported Tuesday that it paid $10.93 billion in compensation for the year which includes everything from salaries to bonuses to payroll taxes to benefits. That is down 46% from a year ago. Goldman Sachs received $10 billion from the Treasury.
"Bonuses across Goldman Sachs will be down significantly this year," a representative from the bank told ABC News. The spokesman refused to disclose the size of the bonus pool or how much of the compensation fund of $10.93 billion was planned for bonuses.
"We do not break down the components of compensation; however, most of that number was not bonuses," he said. Goldman Sachs added, "TARP money is not being paid to employee compensation. It's been and will continue to be used to facilitate client activity in the capital markets."
Goldman Sachs has pointed out that seven of its senior executives were forgoing bonuses this year. The company also reported Tuesday that it lost $2.1 billion in the last quarter.
"It looks like Goldman Sachs is treating this as business as usual," said compensation expert James Reda. "They are taking our taxpayer money. They should be able to account for that money."
"What's missing from this report is the exact amount of bonuses that were paid," said Reda. He later added, "They're hiding the ball."
Fred Cannon, chief equity strategist with Keefe Bruyette and & Woods, an investment bank that specializes exclusively in financial services said, "It is difficult to say what the TARP funds are directly used for. In terms of compensation, while TARP funds may not directly pay for compensation, the funds do provide additional overall cash to the companies."
When pressed for what the TARP money was being used for, Goldman Sachs replied that it is spent to "facilitate client activity in the capital markets."
Only One Bank Cited a Loan It Made
Of the 16 banks that were contacted by ABC News and asked how they are spending the hundreds of billions of taxpayers dollars, only one bank pointed to a specific loan that it made with the cash.
Wells Fargo said of the $25 billion it received that it "cannot provide any foward-looking guidance on lending for this quarter... Intend to use the Capital Purchase Program funds to make more loans to credit-worthy customers."
The response from U.S. Bancorp said its $6.6 billion in public funds are stacked up in its vault. "Have not yet utilized TARP funds," the bank told ABC News.
More typical was the generic response by the Bank of New York Mellon which said of the fortune it has banked in public monies: "Using the $3 billion to provide liquidity to the credit markets."
Morgan Stanley, which announced today a $2.37 billion quarterly loss, said only that "lending is a big part of [how we are using TARP funds.]" Morgan Stanley received $10 billion in TARP cash.
Congress and fiscal watchdogs have been frustrated and upset that the banks do not have to account for the way they are spending these publicly financed bonanzas.
The U.S. Treasury has spent $335 billion of the $700 billion in the TARP fund in an attempt to get banks back in the lending business and to unfreeze the nation's credit markets.
Last week Congress was angered to learn that giant insurance company American Insurance Group, which received $150 billion in TARP cash to stay afloat, was paying over $100 million in "retention bonuses" to 168 employees.
That revelation prompted Rep. Elijah Cummings, D-Md., to complain, "It's absolutely and incredibly wrong that we don't have more transparency."
All the Banks That Got TARP Cash Indicate They Are Paying Bonuses
While several banks said that its top executives would skip bonuses this year or its compensation pool was smaller this year than in past years, all indicated that some end-of-year compensation was in the works.
When asked how much the banks were paying out in bonuses and whether TARP funds would be used to finance them, most of the banks did not make such a declaration.
"Incentive compensation not yet allocated," was as far as JP Morgan Chase, which received $25 billion from TARP, would go.
Bank of America, which got $15 billion from TARP, said only, "Have reduced the incentive targets by more than half. Final awards have not been determined."
State Street Bank ruled out using TARP to reward its top officers.
"Will not use any of the proceeds from the TARP Capital Purchase Program to fund our bonus pool or executive compensation," the bank insisted.
Cannon said the banks are being very conservative with their money.
After reviewing the statements the banks provided to ABC News he said, "The banks are expressing good intention in line with the good intention of the program. However, the answers from the bank belie the current challenge; the economy is deteriorating rapidly and making good loans, with strong underwriting into an economy that is falling apart is very difficult."
Banks Mum on How They Are Using TARP Cash
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