Big-bank CEOs: the billion-dollar bust

Updated: May 24, 2011 2:40 PM UTC

Has any group ever been more richly rewarded for failure than the CEOs of the six biggest U.S. banks? 

Over the past decade the too-big-to-fail banks have showered a staggering $1.15 billion in cash and stock on a changing cast of hard-charging if inept chief executives, according to regulatory filings. That works out to an average paycheck of $19 million a year – this in a decade in which the biggest banks ripped off everyone in sight on their way to very nearly turning the lights out on the U.S. economy. Well played.

If the banks’ customers and U.S. taxpayers were the biggest losers, shareholders weren’t far behind. Say you plowed $100 into a market-weighted basket of shares in Bank of America (bac), JPMorgan Chase (jpm), Citigroup (c), Wells Fargo (wfc), Goldman Sachs (gs) and Morgan Stanley (ms) on Jan. 1, 2001. How much would you have had by the end of last year?

The answer is a princely $81.60, according to an analysis by Kevin Kelly of Capital IQ in Denver. Even a buyer of the S&P 500 at the start of stocks' lost decade would have $115. Imagine the sums these wise bankers could command if they ever did right by anyone but themselves!

The winners in this zero-sum game are, naturally, the guys who move other people's money around to such effect. They are led by CEOs Lloyd Blankfein of Goldman, Jamie Dimon of JPMorgan Chase and Dick Kovacevich, who led Wells Fargo till 2007.

Even by the standards of the bailout age, the sums they have taken down are mindboggling. Blankfein, paragon of self-denial, has scraped by on $233 million since taking over as CEO for Hank Paulson in 2004. Dimon, known as banking’s golden boy for good reason, has subsisted on $177 million since replacing William Harrrison in 2003.  Kovacevich, evidently as much an ascetic as a loudmouth banker, eked out a living on a miserly $97.5 million between 2001 and 2007 before giving way to John Stumpf. How tough it is nowadays to make ends meet!

What’s most absurd is that these are, for the purposes of this discussion, the good guys. Shareholders in those three banks actually made a little money over the past decade (see chart, right), if not enough to justify these sums – and not without trillions of dollars of help from the U.S. taxpayer.

It is hard to muster any such defense, however half-hearted, for the proud chieftains of the other big banks. All three have lost shareholders gobs of money over the past decade – in Citi’s (c) case, nearly all of it -- even as they took tens of billions of dollars of bailout funds.

This rogue’s gallery includes Ken Lewis, who was forced out of Bank of America after taking $150 million of shareholder money between 2001 and 2009; John Mack, who received $118 million for overseeing a majestic 25% decline in Morgan Stanley’s stock price; and the immortal Chuck Prince, who took $113 million over four short years as he waltzed Citigroup to the brink of insolvency.

The good news, such as it is, is that all three of those losers have been shown the door by now. Whether their replacements represent any improvement remains to be seen, however.

Take Citi, where the board this month gave Vikram Pandit a retention package worth at least $22 million (and perhaps double that) after he oversaw an 87% stock price plunge that stopped short of zero only because Tim Geithner bought that line about the banks being the heart of the economy. Part of the argument in favor of this curious arrangement, supposedly, was Pandit's unparalleled sacrifice in having taken a dollar in salary for the previous year and a half.

But emphasizing that Pandit was earning $1 a year "is disingenuous since it ignores the $38 million of pay in 2008 and the $165 million he received in 2007 for Citi’s purchase of the CEO’s hedge fund, which has since been closed due to performance and outflows," writes CLSA analyst Mike Mayo.

There is also the curious case of Brian Moynihan, who took over after Lewis got a long overdue ax in late 2009. You'd think it would be hard to do worse than the guy whose last two acts were saddling BofA with the lawsuit magnet Countrywide and the massively overpriced Merrill Lynch. But Moynihan, to his sort of credit, has been so reckless in his promises to do right by shareholders that  he has even roused the somnolent Fed. At least he is making less than Lewis did.

So now the focus turns to whether the banks are indeed going to ignite a recovery. There is not a lot of evidence so far in their numbers, which show loans shrinking even as deposits flow in, and the economy is not exactly going great guns lately. But hey, imagine the bonuses Dimon and Moynihan and their pals can command when they do eventually start lending.