The big banks face fresh scrutiny of their handling of the mortgage mess – from their own boards, no less.
Shareholders at Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) could vote this spring to compel their audit committees to investigate the banks’ mortgage and foreclosure practices, and report back by fall.
The votes will come despite much eye-rolling from the banks, which have tended to be less than forthcoming on the subject. Bank of America and Citi petitioned regulators to keep shareholders from voting on the proposal, which is sponsored by the New York City pension funds led by city comptroller John C. Liu. But the Securities and Exchange Commission ruled this month that the votes must go on.
“An independent examination of bank foreclosure practices is needed to reassure shareholders and protect pensioners and taxpayers,” said Liu, a Democrat who has been pushing since last fall for bank boards to wake up and investigate. “Regrettably, the banks have failed us on this and even went so far as to try and kick us off the ballot, but the shareholders have prevailed.”
The New York funds say they own $1.7 billion worth of stock in BofA, Citi, Wells and JPMorgan Chase (JPM). Its shareholders won’t vote on the New York proposal but will vote on a similar one. Wells initially opposed the New York proposal as similar to one its shareholders were already voting on, but took up the New York measure after the other one was dropped.
Though shareholder proposals rarely pass, the votes will give investors a chance to voice their dissatisfaction with the banks’ handling of the housing crisis. If adopted, the proposal would oblige boards to evaluate the banks’ legal compliance, policies and procedures, staffing adequacy and financial incentives.
The banks have come under fire on all of those fronts over the past six months, with the robo-signing scandal showing the big mortgage servicers regularly flouted state laws in part because their staffing was so thin. Some observers say it could cost tens of billions for the banks to fix their paperwork problems, even if state attorneys general don’t manage to impose a $20 billion penalty on the industry.
The banks’ ineptitude and willingness to bend the rules have led to unnecessary foreclosures that hurt people, damage communities and reduce the public trust, if that’s possible, in bailed-out financial institutions. But as usual, the banks haven’t been cowed by their poor performance.
Citi, for instance, argued before the SEC that it shouldn’t have to let shareholders vote on the proposal, because doing so would “micromanage the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”
This from an outfit that took, all in, more than $300 billion of assistance from the government during the financial crisis, and recently approved a compensation package that would reward execs over the next two years even if earnings fall from 2010 levels. Lots of informed judgments have been made there, no doubt.
BofA, for its part, argued it had “substantially implemented” the proposal by releasing a mishmash of foreclosure and mortgage information over recent months. But the NYC funds responded that “the fact that the company’s existing internal controls and reviews did not discover any irregularities with its foreclosure processes, until such irregularities became highly publicized in the press, highlight the need for an independent review of the company’s internal controls related to loan modifications, foreclosures and securitizations.”
Both Citi and Wells Fargo have included the proposal in the proxy statements they mailed to shareholders, with the caveat that management is hard set against it — with Wells warning that adopting it could “distract our efforts to cooperate with reviews undertaken by our federal banking regulators.” Uh huh.
BofA and JPMorgan Chase will surely do the same when they send out their proxies. Getting a hearing on the mortgage mess is surely a small victory, but don’t think for a second that just getting on the ballot is going to make the banks behave.
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