October 2, 2012, 6:39 pmIn Market Rebound, a Windfall for Wall Street ExecutivesBy STEVEN M. DAVIDOFFSome four years after the financial crisis, many are still feeling the ill effects. But big bank executives are not among this unfortunate group, compensation data shows.
The executives who headed financial institutions in those uncertain times of early 2009, when markets and banks were being supported by the federal government, are now in line to receive windfall compensation in the hundreds of millions of dollars.
What did they do to deserve such a reward? It's hard to justify and it goes a long way toward explaining the persistent anger toward Wall Street. And we have the government partly to blame for it.
A large part of the reason is simply lucky timing.
In the depths of the financial crisis in 2008 and 20009, when the Standard & Poor's 500-stock index was touching below 700, bank executives were granted millions in options and stock incentives valued at incredibly low stock prices. The banks were encouraged to offer this compensation because of the restrictions in the Troubled Asset Relief Program, which in many circumstances prohibited the payment of bonuses other than in long-term restricted stock. As a result, companies awarded more equity than they otherwise would have at the time.
Since then, the stock market has returned to near the level it was before the financial crisis, making those options and stock very valuable.
To determine how large the windfall is, I asked Equilar, an executive compensation data firm, to compile the value of stock and options granted to the top five executives at each of the 18 largest American financial institutions - those that underwent stress tests in those years. (Ally Bank also received a stress test but was excluded because it was not public at the time). I also asked Equilar to determine what the packages were worth now, assuming the executives had held on to the stock and options.
It's a stupendous amount.
The top executives at those 18 financial institutions received an aggregate of $142 million in stock and options from July 1, 2008, to June 30, 2009. It was a lot then, but these stock and options are now worth $457 million, an increase of $330 million, or 221 percent. On average, that is roughly $4 million per executive who received such compensation.
Individually, some of the gains are even more breathtaking. Take American Express and its chief executive, Kenneth I. Chenault. In 2007, before the financial crisis, American Express was trading for years at $50 to $60. Then the crisis hit, and in six months the stock fell below $10 a share.
dealbook.nytimes.com |
