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Most senior management team members of large U.S. financial institutions have publically declined bonus compensation for 2008. We applaud this leadership. This action indicates to their employees that they are willing to share in the pain of both layoffs and lower compensation, but also indicates to their shareholders that they hold themselves accountable for the weak performance of their stock prices in 2008. Two notable CEOs that have yet to publically state that they will forgo bonuses this year are, Kenneth Lewis from Bank of America (BAC) and Vikram Pandit from Citigroup (C).

While U.S. Banker, an industry publication, recently noted in a headline that, “Lewis Emerges as Exemplar of Leadership in Time of Crisis”, the performance of his Company’s stock suggests otherwise. Over the last 52-weeks, BAC is down ~-67%. He may indeed be the best of an underperforming group of money center banking executives, but the reality of the poorly timed and overpaid acquisitions of Merrill Lynch and Country Wide Financial, has led to massive underperformance of BAC’s stock versus the broader market.

We have long been critical of Vikram "The Bandit" Pandit, the current CEO of Citigroup. In fact, we have been critical of almost all of Investment Banking, Inc.'s leadership. On the margin, though, we do find positive the fact that most of the CEOs and senior managers of the major Investment Banks are forgoing bonus compensation for 2008. Even John Thain, after likely pressure from his Board, has decided to forgo a bonus for 2008. As of now, the last major CEO of all the major investment banks to forgo his 2008 bonus compensation, at least publicly, is "The Pandit Bandit".

In June 2007, Citigroup acquired Old Lane, a hedge fund founded by Pandit, for reportedly more than $800MM. Pandit's take from the acquisition was more than $165MM. Less than a year later, Citigroup decided to shut down Old Lane due to "mediocre performance and the loss of top managers." Last Wednesday, Citigroup press released that the embarrassing story of Old Lane had finally ended as Citigroup press released that they will "severe ties with senior executives" of Old Lane Partners by December 31, 2008.

While Pandit cannot take back many of his questionable management decisions from 2008, we do think it is due time for him to forgo his bonus compensation for the year and return some of the $165MM that he paid less than a year and a half ago for a business, Old Lane Partners, that no longer exists. In Pandit's own words from August of 2008 as it relates to his changing the scheme of how Citi employees were paid, "people do what you pay them to do". Indeed.

Financials (XLF) continue to underperform the SP500 today.

Daryl G. Jones
Managing Director