St. Louis bankers cry over pay limit from Congress
Why us? That’s the cry from St. Louis bankers who find their bonuses capped by the new federal stimulus bill.
Like several St. Louis bankers, Gary Douglass, CEO at Pulaski Bank, complains that the law designed to limit excess on Wall Street is snagging banking’s small fry as well.
"There’s one big paintbrush, and everybody gets painted with it," Douglass says. "People do need to be mad, and things need to be fixed, but the little guys didn’t cause the problem."
Others bankers say that they understand why taxpayers’ money ought to come with strings attached, and that the bank bailout is supposed to free up lending, not line bank executives’ pockets.
The pay limit, slipped into the bill at the last minute by Sen. Christopher Dodd, D-Conn., applies to banks that took capital injections from the U.S. Treasury under the Troubled Asset Relief Program. The bill limits annual bonuses for top executives to an amount 50 percent of base pay.
The amendment sailed through Congress on a wave of consternation after news that Wall Street banks had paid billions in bonuses to top bosses after taking bailout money from the government. So far, five St. Louis banks have taken the federal cash: Enterprise Financial, Pulaski Bank, First Banks, Centrue Bank, and most recently, Reliance Bancshares, which announced Friday that it accepted $40 million from the Treasury.
But the bill also will affect pay at out-of-town financial companies with big operations in St. Louis, such as Bank of America and Wells Fargo, the new owner of St. Louis-based Wachovia Securities, and Marshall & Ilsley, parent of Southwest Bank. They also took federal cash.
Bankers are still pondering the regulations, and the Treasury still has to draft specific rules. How many executives are affected will depend on how much money each institution took from the Treasury. At some big banks, the top 25 executives could be covered.
Some St. Louis institutions rely heavily on bonuses to compensate top leaders. At least five current executives at Wachovia Securities made more than $1.5 million in 2007, when the company still operated under the A.G. Edwards name. Their pay ranged up to $2.8 million. At the most, base pay made up $220,000 of that, with nearly all the rest in bonuses.
A spokeswoman for Wells Fargo, Wachovia’s new owner, declined to comment.
Local commercial bankers say they don’t make Wall Street-level salaries, where top executives at major firms pull in tens of millions of dollars.
In 2007, the latest figure available, the highest-paid officer at Enterprise Financial was former CEO Kevin Eichner, who earned $1.1 million, with more than half of it bonus lowest fee payday loans. At Pulaski, then-CEO Walter Donius made $345,000.
By contrast, Bank of America chief executive Ken Lewis was paid more than $20 million in 2007.
Executives at Pulaski and Enterprise say they took the federal money even though they didn’t need it, because the extra capital would let the banks expand their lending. Much of the money went to banks that regulators consider healthy, they note.
The biggest area recipient of federal money was First Banks, a Clayton-based bank with branches from Florida to California. The bank took major losses in the California real estate market. The $295 million federal capital infusion came on top of more than $100 million injected into the bank last summer in a self-bailout by its owners, the family of Jim Dierberg.
The bank reported last month a $202 million loss for the last three months of 2008 as the bank set aside money to cover bad loans and took a noncash loss involving tax allowances.
CEO Terrance McCarthy says the bank is paying no management bonuses this year. In 2007, McCarthy earned $862,000, with $375,000 of that in bonus.
At Enterprise Bank, president Steve Marsh worries about the government "micromanaging compensation." Area bankers say bonuses encourage good performance. If the law limits bonuses, banks may simply increase salaries. Then even bad performers will get hefty pay, and good performers will leave for companies that aren’t under the bonus limits.
"When you limit pay, you potentially get mediocrity into the system," says Robert Witterschein, Southwest Bank’s president.
Others don’t buy that argument. There’s plenty of talent waiting to replace people who leave, says Ed Lawrence, a professor of banking at the University of Missouri-St. Louis.
"Nothing hurts the industry more than the sight of executives taking out millions while feeding on the public trough," he said, adding that Wall Street executives "are a bunch of whiners who have raped the system long enough."
He notes that banks place restrictions on the people they lend to. The government should do the same when handing money to banks, he said.
Some think the pay restriction could prompt some banks to return the government’s money quickly, which could restrain their ability to lend. But others note that federal regulators wouldn’t let a bank that really needs capital return it.
jgallagher@post-dispatch.com
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