Rubin: Give back the cash!
January 9, 2009 – 11:01 pm
Citigroup director Bob Rubin announced his resignation today. One of the primary architects of the current financial crisis, he will not be missed. Rubin was among those in the Clinton administration that made Citigroup possible. The bloated financial “supermarket” was the result of a merger between Traveler’s and Citicorp. That merger, announced in 1998, violated terms of the Glass Steagall Act, the highly-sensible Depression-era law that had prevented banks from getting into the investment and insurance businesses. Had Glass-Steagall not been gutted by the Greenspan Fed and then repealed in a fit of bipartisan de-regulatory zeal, Citigroup would likely never have been formed or at the least forced to divest certain businesses. But it was, so they didn’t.
Then Treasury Secretary Rubin shepherded the final repeal into law, with plenty of support from Republicans I might add. It was passed days before his resignation. Only a few months later, Rubin went to work for Citigroup, for a cool $15 million a year in salary and bonus.* That doesn’t include tens of millions in perqs and stock options. Though he didn’t take a bonus this year or last, Bloomberg says he made about $150 million in his time at Citi. With that figure in mind, here’s an interesting quote from his employment agreement.** Turns out the $14 million annual “incentive” component of Rubin’s compensation was “guaranteed” but for:
…extraordinary circumstances drastically negatively affecting Citigroup reported operating results…
The clause had the additional stipulation that, even in the disaster scenario, Rubin wouldn’t get his pay docked unless Sandy Weill did too. Before the financial crisis has run its course, my guess is that Citigroup’s operating profits during Rubin’s and Weill’s entire tenures will have been wiped out by writedowns. That may have happened already, I haven’t been keeping track.
If either gentleman had the least shred of decency, he’d cut a check to the U.S. Treasury for any after tax amount taken home.
After all, they oversaw the creation of a disgustingly over-leveraged monster of a financial company that would already have imploded, but for taxpayer largesse. During Rubin’s tenure alone, Citigroup’s leverage ratio exploded. Measured as assets over tangible common equity, Citi’s leverage increased from 15x in 1999 to 56x as of Sept 30th. (And that’s being charitable: the Sept. calculation excludes over a trillion $ of off-balance sheet assets)
As banks pile on the leverage, they are taking substantially more risk to eek out incremental dollars of profit. And while shareholders have certainly taken it on the chin since those risks have gone bad, Citi’s bondholders and other creditors haven’t, benefiting from taxpayer generosity to the tune of $45 billion in TARP capital and a guarantee backstopping over $300b of toxic assets.
Clearly Citi leaders took actions that “drastically negatively” affected Citi’s operating results, calling into question all previous incentive compensation they’ve received.
Clawing back Rubin’s comp wouldn’t absorb more than a tiny fraction of taxpayers’ likely losses, of course. He should just give it back on principle.
I don’t mean to be singling out Bob Rubin, by the way. All past and current executives of financial companies that have failed or received TARP money should forfeit past comp. Jimmy Cayne from Bear, Dick Fuld at Lehman, Jamie Dimon at Chase (and formerly Citi), Hank Greenberg at AIG, Jack Welch at GE to name just a few.
———
*Rubin’s incentive comp was more like salary. He was guaranteed those payments. They were referred to as incentive comp to dodge IRS rules regarding the deductibility of executive salaries greater than $1 million.
**The agreement is an exhibit at the end of that filing. Go to the link and do a keyword search for “personal and confidential” to go straight to Rubin’s offer letter.
Posted in accounting, banking, stocks |
8 Responses to “Rubin: Give back the cash!”
Mr. Rubin’s tenure at Citigroup is a complete failure, in spite of his $150 million dollar compensation. Citi is bankrupt and only kept in business by the US government committing approximately $309 billion taxpayer dollars to prop up the company. To add insult to injury, Citi continues to pay management bonuses, dividends, go on junkets and spend many millions of dollars on the NY Mets new Citi Field and the Rose Bowl Game presented by Citi. The financial ruling class thinks they are entitled to business as usual supported by the taxpayer, their motto, “what’s good for Citi is good for America.”
By Eric L. Prentis on Jan 10, 2009
you rock Rolfe! as always.
i’m so sick of hearing TV punditry talking about how clawing back past compensation won’t be financially beneficial, as though morality doesn’t exist and has no value at all.
maybe (just maybe) if we tear off a bunch of scabs and watch the financial elite bleed out … it will cause the next batch of leaders to think about their own skins before making ass-stupid short term decisions.
By caustic on Jan 10, 2009
I quote from above: “Then Treasury Secretary Rubin shepherded the final repeal into law, with plenty of support from Republicans I might add. It was passed days before his resignation. Only a few months later, Rubin went to work for Citigroup, for a cool $15 million a year in salary and bonus.”
Wow! What a strange coincidence! Mr. Rubin shepherds through the repeal of a law, the result of which helps Citigroup expand and make bizillions of dollars and then he ends up working for them a few months after he leaves office. What a lucky guy!
I am very sure that the powers at Citigroup back then certainly didn’t call Mr. Rubin while he was Treasury Secretary and offer him a nice cushy job and big pay package in return for assisting them in getting the repeal pushed through. That would be highly unethical, if not illegal, and I for one don’t think the executives at Citigroup or Mr. Rubin would do such a thing. They all seem like such nice people.
By Robert on Jan 10, 2009
Is this the same Rubin that has been counseling Obama about the economy? No wonder his stimulus plan is a mess.
I’m really scared. 2017 is supposed to be the year in which we pay more Social Sec than we take in but if ‘trillions in deficits’ for years actually takes place, we’ll see that date move up to 2016 or 2015–maybe sooner.
I can’t even imagine, or even fathom, what things will be like in four years. Terrifying.
By Lisa on Jan 10, 2009
Many years ago then Pres Eisenhower complained about the “Industrial Military Complex” and all the abuses that were going on at taxpayer expense. Today, we are seeing nothing but a massive raid on the taxpayers by the “Wall Street Congress Complex”.
I quote from above: “Had Glass-Steagall not been gutted by the Greenspan Fed and then repealed in a fit of bipartisan de-regulatory zeal, Citigroup would likely never have been formed or at the least forced to divest certain businesses. But it was, so they didn’t.
Then Treasury Secretary Rubin shepherded the final repeal into law, with plenty of support from Republicans I might add. It was passed days before his resignation”.
Where are the responsible leaders in congress? A blind man with a cane can see the systematic bankruptcy of America by the greed being played out on Wall Street (for the money) and Congress (for the power to govern). Has it struck you as strange that the intent of the Democrates is to control every aspect of our lives?
By DeedInLieu on Jan 11, 2009
It is simply a matter of time before the public begins to hunt these lifetime criminals like Robert Rubin down and literally rips them to shreds.
By Tom Lowe on Jan 11, 2009
Unfortunately, the trend to giganticism is growing not shrinking. Not very long ago we had a rule that prevented any bank from having more than 10% of US bank deposits. Meant to prevent any single banking institution from becoming too
big to fail it has now been abandoned as the Federal Reserve remakes our financial landscape with new superbanks that rival the very Fed itself in terms of balance sheet power.
Wells Fargo/Wachovia, Bank America/Merrill, JP Morgan/WaMu and of course Citigroup. These Goliaths now dominate the American banking landscape and no longer even have to ask for public money, they can demand it. This is insane.
One look at Iceland or Switzerland ought to have convinced Bernanke and Paulson of the risks
of having private banks so large they eclipse
the power of the Central Bank to rescue them without putting at risk the very currency and finances of the nation. We need to break up these giant banks for they benefit no one as they are beyond regulation or the power of auditors to fathom.
By Sangellone on Jan 11, 2009
Could we have like a ‘Nuremburg II’ set of trials for corporate criminals like Rubin?
I’m not suggesting firing squads. But I am suggesting that which these thieves fear most: material impoverishment. Worse than jail, the convicted should be sentenced to employment at the minimum wage right through their ‘golden’ years so they can suffer the same fate as their victims.
By Paul E. Math on Jan 13, 2009