Bank of America Corp. was subpoenaed by New York Attorney General Andrew Cuomo about executive bonuses, adding pressure to provide data the prosecutor requested two weeks ago, according to a person familiar with the probe.
Cuomo sent letters Oct. 29 to the Charlotte-based bank and eight other financial institutions that received $125billion in federal money last month, requesting “detailed accounting” of expected bonus awards to top executives. He asked for responses by Nov. 5.
Cuomo's office viewed Bank of America's response as inadequate, said the person, who wasn't authorized to speak for attribution. Bank of America, which received $15billion from the U.S. Treasury as part of the bailout, had $14.3 billion in personnel expenses in the first nine months of this year, up from $13.9 billion in the year-earlier period, according to a filing with the U.S. Securities and Exchange Commission.
Bank of America had more than 247,000 employees as of Sept. 30, about 25 percent more than the 198,000 it had a year earlier.
“Bank of America is not using TARP money for executive compensation or bonuses,” Bank of America spokesman Scott Silvestri said in an interview, referring to the funds from the federal Troubled Asset Relief Program.
Silvestri declined to confirm that Bank of America had received the subpoena, or to reveal how the bank had responded to Cuomo's initial request. He said the bank did respond.
At a U.S. Senate hearing Thursday, Bank of America corporate affairs executive Anne Finucane said the bank is cutting its bonus pool for senior executives by half and won't use money from the Treasury's bailout fund for compensation. (See related story on page 2.)
Cuomo's requests for bonus data from the nine banks last month followed demands from U.S. Rep. Henry Waxman, a California Democrat and chairman of the House Committee on Oversight and Government Reform, that the banks justify billions in pay and bonuses amid the worst financial crisis since the Depression.
Banks including Citigroup Inc. and Goldman Sachs Group Inc. answered Cuomo's demand by saying decisions about the year-end payouts haven't been made, people with knowledge of the matter said as the Nov. 5 deadline neared.
Lawyers at the nine companies held discussions among themselves on how to respond, according to the people, who declined to be identified because the talks were confidential.
In their replies to Cuomo, the companies said no federal money will be used for the awards, which are set aside from revenue throughout the year, the people said.
“We've responded appropriately to the attorney general's request for information about 2008 bonus pools and confirmed that we will not use TARP funds for compensation,” Christina Pretto, a Citigroup spokeswoman, said Nov. 6.
Citigroup, which received $25 billion from the government last month, reported $26 billion in expenses for compensation and benefits in the first nine months of 2008, up 4 percent from the same period a year ago. The New York-based bank has posted four consecutive quarterly losses.
Gregory Palm, a general counsel at Goldman Sachs, said his firm's bonuses would be paid out of earnings for the year, not TARP funds, in prepared testimony for a hearing before U.S. Senate Banking Chairman Christopher Dodd.
Palm also said decisions on compensation won't be made until the end of the year. Goldman received $10 billion under TARP. The firm, which typically distributes two-thirds of annual compensation as year-end bonuses, recorded $11.4 billion in compensation expenses in the first nine months of this year.
Graef Crystal, a former compensation consultant and author of the newsletter graefcrystal.com, disputed the banks' claim that funds for compensation are separate from federal money.
“The argument of saying we're not using the bailout money is just crap because money's fungible, money's money,” Crystal said in an interview last week. “It exposes them to ridicule.”