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Financial Services Update

Financial Regulatory Reform Bill Becomes Law 

On Wednesday, President Obama signed into law the Dodd-Frank Wall Street Reform Act at a ceremony at the Ronald Reagan Building. Speculation and controversy surrounded which bank CEOs were to be invited. Among those invited were Citigroup CEO Vikram Pandit, Morgan Stanley CEO James Gorman, Bank of America CEO Brian Moynihan, and UBS Americas CEO Robert Wolf. However, those not invited included among others　JPMorganChase CEO James Dimon or Goldman Sachs CEO Lloyd Blankfein.

Issa Questions SEC Over Goldman Settlement Timing 

Last Friday, House Reform and Government Oversight Committee Ranking Member Darrell Issa (R-CA) sent a letter to SEC Chairman Mary Schapiro requesting an inquiry into the timing of the agency’s $550 million settlement with Goldman Sachs. On Thursday, SEC Inspector General David Kotz responded to Issa and confirmed that the Commission would open a formal inquiry and investigate communication between the SEC and Goldman employees. 

The President Signs into Law Unemployment Benefits Extension 

On Thursday, President Obama signed into law legislation passed by the House on Thursday and the Senate on Wednesday that would restore unemployment benefits to an estimated 2 million Americans without jobs. The $34 billion measure was the subject of a fierce partisan battle in Congress over whether the cost should be offset with spending cuts or tax increases to avoid enlarging the federal deficit. The vote in the House was 272 to 152, with 31 Republicans joining 241 Democrats in supporting the measure. The final vote in the Senate was 59-39. Among other issues, the bill also extends through 2012 a number of business tax credits and changes multi-employer pension funding requirements. 

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Friday, July 23, 2010

Financial Services Update

 Financial Regulatory Reform Bill

Congress was not in session this week due to the Fourth of July district work period. However, the House and Senate return to session next week, and the Senate will likely begin debate on the Dodd-Frank Wall Street Reform and Consumer Protection Act Conference Report. With commitments by Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) to support the bill, Democratic leaders remain two votes shy of the sixty they need to move the bill forward – assuming the Senator chosen to replace the late Senator Robert Byrd (D-WV) also is a “yes” vote. Consequently, Democratic leaders are now focused on getting the three Republicans who supported the original Wall Street reform bill that passed the Senate in May to commit to supporting the Conference Report. Senator Scott Brown (R-MA) officially remains uncommitted even after Democrats took the unusual step of reopening the House-Senate conference committee to remove a $19 billion bank fee he opposed. On Monday, Brown was quoted by a local reporter saying, “I’m going to be making a decision soon, but I’m liking what I see.” Senator Olympia Snowe (R-ME) also indicated last week that she approves of the elimination of the bank fee and is now leaning toward supporting the bill. The third Republican, Senator Charles Grassley (R-IA), remains uncommitted.

EU Parliament Approves Bank Bonus Restrictions

On Wednesday, the European Union Parliament approved a bill that restricts bankers in the twenty-seven nation bloc from receiving more than 30 percent of their bonuses in cash beginning next year. The bill will also make bankers susceptible to losing a portion of their bonus if their bank’s performance erodes over the subsequent three years. Banks will further be required to either reduce salaries of their biggest earners or set aside more capital to compensate for the salaries. The legislation, which passed by a vote of 625-28, codifies a compromise reached last week between European governments and lawmakers. National finance ministers from the respective countries are expected to endorse the proposal next Tuesday, July 13, causing it to take effect January 1. The proposal is similar to the measure approved by the G-20 and is designed to affect banks with large operations in Europe such as Deutsche Bank, Barclays, and Goldman Sachs, including some hedge funds. Under the bill, seventy percent of a banker’s bonus would have to be deferred for up to three years and paid in a new class of security, known as “contingent capital,” that would decline in value if the bank’s financial performance deteriorates.

In June, the Federal Reserve outlined a series of its own bank compensation principles, and at a Congressional hearing last month, Federal Reserve Chairman Ben Bernanke promised to move on further compensation restrictions. Additionally, the Obama Administration’s Special Master for TARP Executive Compensation, Ken Feinberg, is preparing to release a report in the near future on the highest earners at 180 U.S. financial companies.

Matt Jessee, Policy Advisor
Matt.jessee@bryancave.com
202.508.6341

Kip Wainscott, Associate Attorney
Kip.wainscott@bryancave.com
202.508.6172

Email This Content Email This Content Posted in Financial Services Update. Tagged with , . By Matt Jessee - Friday, July 9, 2010

Executive Compensation Requirements in the Dodd-Frank Regulatory Reform Bill

The Dodd-Frank regulatory reform bill, which recently passed the House, includes a number of executive compensation reforms. The executive compensation provisions in the bill include reforms to both SEC-reporting company disclosure and financial institution specific disclosure.

Say on Pay

The Dodd-Frank reform bill expounds on current TARP say-on-pay requirements and makes them generally applicable to SEC-reporting companies. Under the reform bill, not less than once every three years, SEC registrants must include in annual meeting proxy statements a shareholder resolution on the compensation of executive officers. In addition, not less than once every six years, SEC registrants must have a shareholder vote to determine the frequency of a vote on executive compensation by shareholders, which may occur, as determined by shareholders, every one, two or three years.

Under the bill, SEC registrants must disclose golden parachute agreements in a proxy statement where shareholders are asked to approve an acquisition, merger, consolidation or proposed sale of substantially all of the assets. The aggregate total compensation that may be paid in such transaction, pursuant to a golden parachute agreement, must be included in this disclosure and be submitted for shareholder approval in a separate resolution.

Similar to the TARP say-on-pay requirements, the say-on-pay and golden parachute resolutions applicable to all SEC-reporting companies are not binding on SEC registrants or directors. Institutional investors, however, will be required to disclose annually how they voted on such disclosures. Although the bill does not explicitly exclude certain registrants from these requirements, the bill gives the SEC the authority to exempt certain registrants and encourages the SEC to take into consideration whether these requirements “disproportionately burden small issuers.”

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Email This Content Email This Content Posted in Dodd-Frank Act. Tagged with , , . By Amber Nash Hall - Friday, July 2, 2010

Financial Services Update – Issue 12

March Jobs Report Released

On Friday, the U.S. Department of Labor said in its March jobs report that non-farm payrolls rose by 162,000, the largest gain since March 2007. Despite the gains, economists were expecting payrolls to rise by as much as 200,000. The Census accounted for 48,000 of the employment boost. Another 40,000 of the increase came in other temporary jobs. The unemployment rate stayed at 9.7%, in line with economists’ expectations. The U.S. economy has lost nearly 8.5 million jobs since the recession began. With stock markets closed for Good Friday, the report’s full impact will be more apparent next week. Total government employment, which includes state and local jobs, rose by 39,000. Beyond government jobs, the report showed that manufacturing jobs continued to trend up, rising by 17,000, as well as jobs in the construction industry which added 15,000 jobs in March.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , , , . By Matt Jessee - Monday, April 5, 2010

TARP Special Master Requests Historical Compensation Data

On March 23, 2010, the Special Master for TARP Executive Compensation issued a letter to all financial institutions that received TARP CPP funds prior to February 17, 2009.  The letter requests compensation data to permit the Special Master to review all bonuses, retention awards and other compensation paid to the institution’s senior executive officers and next 20 most highly-compensated employees from the receipt of TARP CPP funds through February 17, 2009.

In the event the Special Master determines that such compensation is inconsistent with the purposes of TARP or otherwise contrary to the public interest, the Treasury shall seek to negotiate with the TARP CPP recipient and the affected employee for appropriate reimbursements to the federal government.

The review is applicable to all institutions that received TARP assistance prior to February 17, 2009, even if the institution has repaid such funds.  Institutions that received TARP assistance after February 17, 2009 are not included in the review.  A complete list of the affected TARP institutions is included as an appendix to the Special Master’s letter.

Institutions must confirm receipt of the Special Master’s request no later than April 6, 2010, and must submit the required data and certification not later than April 22, 2010.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, March 30, 2010

Financial Services Update – Issue 4

January Unemployment Numbers Released

On Friday, the U.S. Department of Labor released its monthly report showing that the unemployment rate unexpectedly declined in January to 9.7% from an unrevised 10% in December. However, nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. The two statistics are generated by different surveys, which explains how the unemployment rate improved despite a net loss of jobs. Jobs numbers are generated by surveying employers, while the unemployment rate is derived from a household survey.

Senate Financial Regulatory Bill

Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have reached an impasse during their negotiations over the Senate’s financial regulatory reform bill. Dodd and Shelby conducted a meeting Thursday that they had hoped could result in progress toward releasing a bipartisan bill. The primary point of contention between Dodd and Shelby continues to be over a possible new consumer regulatory agency. Dodd announced on Friday that he is forging ahead without Shelby and will release a draft bill later this month with the hope of gaining Republican support later in the process.

Volcker Testifies Before Senate Banking Committee

On Tuesday, White House Economic Advisor Paul Volcker testified before the Senate Banking Committee regarding his plan to decouple what he calls “proprietary and speculative activities” from traditional banking activities. During his testimony, Volcker stated “hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own.” During the hearing Chairman Dodd expressed frustration about the timeliness of Volcker’s proposal in relation to the Committee’s work on the legislation. Following the hearing, sources indicated that Dodd is likely to drop or change many of the recommendations in the proposed Volcker rule.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Friday, February 5, 2010

Treasury Clarifies Interim Final Rule regarding TARP Executive Compensation Limitations

On December 7, 2009, the Treasury Department published corrections to the preamble and certain provisions of the interim final rules regarding TARP Standards for Compensation and Corporate Governance.

The amendments are generally technical in nature and are designed to clarify certain ambiguities in the original interim final rule and to conform the certification language to reflect the deadlines generally set forth in the regulation and to correct certain cross-references.

The two most important clarifications relate to the identification of most highly compensated employees and the applicability of the “say on pay” requirements.

With regard to the identification of the most highly compensated employees, the correcting amendments make clear that the senior executive officers should NOT be excluded from determinations of the most highly compensated employees.  The rule also makes clear that senior executive officers should not be double-counted; if a provision is applicable to the senior executive officers and a certain number of the most highly compensated employees of the TARP recipient, the senior executive officers (because they are already subject to the provision) are excluded for purposes of determining the most highly compensated employees that are also subject to the provision.  Accordingly, for TARP recipients that received less than $25 million in Capital Purchase Program funding, the prohibition on the payment or accrual of bonus will apply only to the most highly compensated employee (regardless of whether such employee is a senior executive officer).

The correcting amendments also make clear that private companies are not subject to the requirement to provide shareholders a “say on pay.”  Only TARP recipients otherwise subject to SEC regulation are required to provide shareholders with a nonbinding resolution on executive compensation.

Email This Content Email This Content Posted in TARP Capital. Tagged with , . By Rob Klingler - Monday, December 14, 2009

Summary of Federal Reserve Proposed Compensation Guidance

On October 22, 2009, the Federal Register published proposed guidance from the Federal Reserve for structuring incentive compensation arrangements at banking organizations.

There are several notable aspects of the proposed guidance. First, the Federal Reserve expects all banking organizations, not just entities participating in the Troubled Asset Relief Program, to review their incentive compensation arrangements in light of the guidance. Second, the guidance sets forth principles that banking organizations should follow and implement as part of their incentive compensation arrangements, but does not establish pay caps or other specific formulas for calculating incentive compensation. Third, the principles in the guidance apply to incentive compensation arrangements for executives, employees, and groups of employees who may expose the organization to material amounts of risk. They are not limited to compensation arrangements for executive officers or other highly compensated employees.

Principles of a Sound Incentive Compensation System

The Federal Reserve guidance is centered on three (3) main principles that should be followed when designing a sound incentive compensation system.

Principle #1: Balanced Risk-Taking Incentives

  • Incentive compensation arrangements should account for risks associated with employee’s activities when developing incentive compensation arrangements.

An incentive compensation arrangement should balance the risk and the reward associated with activities undertaken by the employee. This balance is achieved when incentive compensation paid to an employee accounts for the risks and the financial benefits associated with the employee’s activities. This may require banking organizations to reduce the amount of incentive compensation payable to an employee to account for the risks.

Example: Two employees generate the same amount of short-term profit, but the activities of one employee result in greater risk to the banking organization. Under a balanced incentive compensation arrangement, the employee whose activities result in a greater risk to the banking organization should receive less than the employee whose activities did not result in a greater risk to the banking organization.

  • Employees should understand how risk and risk outcomes are accounted for in their incentive compensation arrangements.

Banking organizations should communicate clearly to employees how an incentive compensation arrangement will account for risk and risk outcomes. The communication should include examples and should be tailored to the employees.
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Email This Content Email This Content Posted in BHC Regulations, Bank Regulations. Tagged with , . By Jennifer Faucett - Monday, December 14, 2009

OCC Reviewing TARP Recipients for Compliance with TARP Requirements

We have recently become aware that the OCC is reviewing national bank TARP recipients for their compliance with TARP requirements as part of the formal examination process.  As of part of the examination, the OCC is requesting to review certain documents, policies, and other information related to areas impacted by the TARP regulations.  In particular, the OCC will review a TARP recipient’s Luxury Expenditure Policy, as well as other compensation-related information.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Dustin Hall - Thursday, September 24, 2009

SIGTARP Summarizes Results and Posts Individual Responses

On August 19, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) published its latest Audit Report, titled “Despite Evolving Rules on Executive Compensation, SIGTARP Survey Provides Insights on Compliance.” The Report summarizes the results of SIGTARP’s survey of the first 364 TARP CPP recipients, focusing on their executive compensation responses. (SIGTARP previously published its Audit Report on the responses related to the use of TARP funds.)

In the aggregate, the responses are not particularly insightful.  As noted in the Report’s conclusion:

Since EESA was enacted on October 3, 2008, the legislation and implementing guidance on executive compensation for TARP recipients have been in flux.  Nevertheless, most CPP recipients report that they have made a concerted effort to comply with executive compensation limitations.  Moreover, many institutions reported that they intend to comply with the additional restrictions on executive compensation enacted under ARRA.  Nonetheless, some recipients voiced concerns about the new restrictions; in particular, they noted a need for further Treasury guidance or regulations to implement ARRA executive compensation limits.”

However, in addition to the Audit Report itself, SIGTARP has published redacted copies of all of the SIGTARP survey responses.  Responses are listed both alphabetically, and by state.

Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, September 8, 2009