The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Are ‘Say on Pay’ concerns enough to mollify banks and shareholders? | Banking Insight

When Citi’s Vikram Pandit tried to crawl out of his $1 pay for 2009 and 2010 with a $14.9 mln package for 2011, the shareholders’ exercissed their say for pay voted with a resounding 55% “No” to the proposals, putting Citi executives at risk of being hot headed, wasteful and other such if they indeed encashed the pay cheque for themselves. At Barclays’ it was a close call but the largest CEO package over $17 mln for CEO Bob Diamond was rejected by only 35% of the shareholders including pension funds. CalPERS (California Public Employees’ Retirement System) voted against the pay proposals brought forth by Citi and Citi will be going back to shareholders to discuss what could be done to assuage investors and shareholders though the Say on Pay legislation does not enforce the vote on the banks mandatorily. Shareholders can nominate their own Directors on the Board since new Proxy rules were effected by the SEC in 2010 but firms’ reaction to the shareholder activism has not warmed the cockles of many despite the positive share performance of those listening to shareholders in light of the new law.

Proxy firms like Institutional Shareholder Services have a big role to play in advising institutional shareholders’ to vote against a particular resolution. The new UK regulations could target both banks and other firms in the UK. CEOs at Aviva and AstraZeneca had to tender their resignation over Executive pay proposals though the UK law is still at a draft stage. Average pay of Directors’ in FTSE 100 companies rose 49% last year to GBP 2.7 mln or $4 mln Meanwhile a new ranking of the World’s strongest banks kept Citi and Bank of America out while giving Canadian counterparts 5 out of the Top 10 rankings. JP Morgan was included along with PNC Financial in the list.

JP Morgan’s investor day conference on Tuesday will again test the much welcomed shareholder proxy access rules of 2010 and the proxy firms like ISS who will also vote on Dimon’s pay package apart from discussing the $2.3 bln loss that caused CIO office Head Ina Drew to resign yesterday. Of course the heads that have rolled at the bank also walk away with their pay and benefits intact though it is not clear if any fraud has been associated with the firm’s actions in the European CDS market in April and May 2012. In the case fraud is detected, new clawback provisions granted could also be requested on the leaving employees. JP Morgan of course is the TBTF example that could not worm its way out of the new regulatory black hole and faces shareholder ire later on Tuesday. Blackrock, Vanguard and State Street will be keenly watched as the firm’s largest shareholder firms. meanwhile two proxy advisory firms will be asking for an independent Board Chair like at Goldman Sachs earlier. (AFSCME Employees Pension Plan) The bank may announce an overhaul of the Risk committee on its own.

As many as 40% of the shareholders present at a UBS meeting earlier in the month had voted down the pay proposals coming on the back of a SFR 1.77 bln loss in the quarter. Dominique Biedermann of Geneva-based sustainable development foundation Ethos, which owns shares in UBS, recommended shareholders reject the bank’s remuneration plan. Shareholders attacked the bank’s intention to increase boardroom pay when the share price had fallen 85% in three years of the crisis.

Executive pay has grown by almost 80% in the last 3-4 years. Banks like Credit Suisse and Barclays’ are particularly at risk since their business model is not seen as defensible in the coming back of Commercial banking to the forefront of banking business vis a vis trading and advisory firms outside Wall Street such as the two. Both faced tough and angry institutional shareholders for having increased Executive payouts in a tough year.

JP Morgan’s price has tanked below $37 since the announcement of the $2 bln loss. Ina Drew, heading the treasury investment function left earlier today.

 

Information

This entry was posted on May 14, 2012 by in Amitonomics, Banking, Financial Services, Global, US.

Archives

%d bloggers like this: