NEWS

US congress challenges Bernanke on bankers’ performance pay

Federal officials in the US, including Federal Reserve chairman, Ben Bernanke, will receive letters from Congress in the next couple of days requesting documents about their knowledge of performance bonuses paid to Merrill Lynch executives just weeks before federal money was allocated to the bank’s merger with Bank of America.

Congressman Dennis Kucinich, chairman of the domestic policy subcommittee of the House Oversight and Government Reform Committee, has requested documents about knowledge of $3.62 billion in bonuses Merrill Lynch paid top executives at the company just weeks before $25 billion in federal aid was given to Bank of America for the merger.

In contrast to the bonuses awarded by AIG, which came under much public scrutiny, the Merrill bonuses constituted a significant proportion of allocated troubled asset relief program (more than one third), were not locked into place by pre-existing contracts, and were performance, not retention bonuses.

“They … raise significant questions about what you and other Federal Reserve officials involved in the merger of BOA and Merrill knew about the Merrill bonuses,” Kucinich says.

Also questioned was the Merrill Lynch Compensation Committee’s decision to award these payments on December 8, 2008, before the end of the fourth quarter, in which Merrill lost more than $15 billion, and after Merrill was informed that it would be allocated $10 billion in TARP funds.

These payments raise significant questions about what information Merrill Lynch and Bank of America executives shared with federal officials that oversaw the Merrill acquisition by Bank of America. Ordinary shareholders were unaware of the details of the bonus payments, but the US government held 800,000 shares in preferred stock and warrants at the time and federal officials regularly met with both Bank of America and Merrill Lynch executives.

Congressman Kucinich sent a similar letter to Ken Lewis, CEO of Bank of America and Neel Kashkari, Interim Assistant Director of Financial Stability. In the letter, Kucinich requests all documents and communications between employees of Bank of America and Treasury and/or the Federal Reserve, and Merrill Lynch and Treasury and/or the Federal Reserve, related in any way to Merrill’s compensation packages, bonuses, and/or Bank of America’s receipt of TARP monies.