Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co, recipients of more than US$100 billion in US rescue funds, criticized congressional proposals to tax Wall Street bonuses.
Bank of America CEO Kenneth Lewis called the tax “unfair” in a memo to employees on Friday, while Citigroup’s CEO Vikram Pandit said his bank is “working in every appropriate way with policymakers.” JPMorgan’s Jamie Dimon held a conference call with about 200 executives, saying the firm is concerned about retention and is working with lawmakers.
The banks are responding to an outcry in Congress over US$165 million in bonuses paid by American International Group Inc (AIG) after the insurer received US$173 billion in federal bailout funds. The Senate will vote next week on levies on bonuses after the House of Representatives approved a 90 percent tax on bonuses at companies that received bailout funds.
“People are very anxious about this getting too widespread, this notion that no one on Wall Street or in banking deserves any money,” said Seamus McMahon, a consultant with Booz & Co in New York, who works with financial firms.
Banks, worried that the proposals are distracting employees, are trying to reassure staff and keep them focused on clients. Lewis said the taxes could cause “unintended harm” and delay the recovery of the financial system. Dimon urged workers to call politicians and voice their opinions, a spokesman said.
“The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees,” Pandit said in the memo.
“I am very concerned about our ability to retain some of our most valuable associates,” Lewis wrote in his memo to employees obtained by Bloomberg. “The very best performers on our team will always have offers from competitors.”
The House bill would affect employees whose household income is more than US$250,000 at companies that received more than US$5 billion. JPMorgan took US$25 billion as part of the first round of infusions. Citigroup got US$45 billion and agreed to allow the government to become its biggest shareholder. Bank of America, including Merrill Lynch, has received US$45 billion in cash and a backstop on US$118 billion in assets.
Meanwhile, Federal Reserve Chairman Ben Bernanke on Friday called for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions.
Banking regulators have observed that “poorly designed compensation policies can create perverse incentives that can ultimately jeopardize the health of the banking organization,” Bernanke told a meeting of smaller community banks.
Bernanke, who will appear before Congress on the AIG flap next week, didn’t mention any companies by name in his speech.
“Supervisors must pay close attention to compensation practices that can create mismatches between the rewards and risks borne by institutions or their managers,” he said.
Representative Barney Frank, chairman of the House Financial Services Committee, on Thursday sent a letter asking the Federal Housing Finance Agency, which regulates mortgage finance companies Fannie Mae and Freddie Mac, to cancel retention bonuses for hundreds of executives approved for this year and next.
But Fannie Mae chief executive Herbert Allison warned on Friday that canceling bonuses for workers at institutions receiving federal bailout money could undermine his company’s efforts to stabilize the US housing market.
Fannie Mae plans to pay retention bonuses totaling at least US$1 million apiece over two years to four key executives. Freddie Mac is planning similar awards, but hasn’t reported which executives will benefit.
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