Bank Watch

Why BB&T bonuses are creating a stir

Kelly King, CEO of BB&T Corp., the third-biggest bank by deposits in the Charlotte area, is among the lender’s top executives in line for a total of $2.6 million in bonuses connected to its purchase of Pennsylvania lender Susquehanna Bancshares. The bonuses are tied to BB&T replacing Susquehanna’s computer systems with its own.
Kelly King, CEO of BB&T Corp., the third-biggest bank by deposits in the Charlotte area, is among the lender’s top executives in line for a total of $2.6 million in bonuses connected to its purchase of Pennsylvania lender Susquehanna Bancshares. The bonuses are tied to BB&T replacing Susquehanna’s computer systems with its own. Brendan Hoffman

Bank bonuses are back in the news.

BB&T Corp., the third-largest bank by deposits in Charlotte, is raising eyebrows over millions of dollars in bonuses its top executives could reap following its pending acquisition of Pennsylvania lender Susquehanna Bancshares.

What’s unusual about the bonuses: They are based on BB&T replacing Susquehanna’s computer systems with its own as part of the deal.

Banking bonuses are normal. Giving them to top brass for switching out computer systems when a new bank is acquired is not normal, industry observers say.

Five executives of the Winston-Salem company, including CEO Kelly King, are in line to receive the “merger completion” payouts. They total $2.6 million in cash, restricted stock or a combination of both. King’s $1.03 million award is the biggest.

In a column on Bankstocks.com, hedge fund manager Thomas Brown called the bonuses a “wrongheaded payout.”

“So BB&T executives will pay themselves a special bonus if the bank successfully integrates its Susquehanna Bancshares acquisition? That’s one of the dumbest ideas I’ve ever heard,” wrote Brown, who runs the website and is known for taking bank executives to task over expensive mergers.

He said BB&T is rewarding executives for combining the two banks – “what top executives are expected to do.”

“It’s part of the job! Why should they get a paid twice for it?” he wrote.

And in a column for Reuters Breakingviews, Antony Currie described the bonuses as “undeserved.” Awarding “windfalls” to executives for mergers “may encourage bad marriages,” he wrote.

Typically, high-level executives at banks are awarded year-end bonuses for overall performance, based on metrics such as increasing the company’s profitability and shareholder value.

In a statement, BB&T called the Susquehanna purchase “an important strategic transaction that will provide long-term benefits to our shareholders.” It said the bonuses are consistent with BB&T’s approach to linking performance to pay.

BB&T declined to comment beyond the statement.

In a regulatory filing, BB&T says its compensation committee could reduce the bonuses to zero based on its review of the company’s “then current performance.” Payment of the BB&T bonuses is based on the computer conversion happening before June 23, 2016.

King’s total compensation for his work last year fell about 8 percent, to $7.3 million, as the lender failed to meet performance targets.

Bradley Allen, a former federal bank examiner, says it can be costly for one bank acquiring another to keep running multiple computer systems. The quicker BB&T can merge them, the quicker it can begin saving money, he said.

Ken Thomas, a Miami-based bank consultant, said the bonuses come at a time when cybersecurity is a top concern for banks and their regulators. But he said it’s usually the information technology staff who get such bonuses, as they’re the ones actually doing the systems conversion.

“As an investor, there might be some questions raised about why Kelly King is getting any of that bonus,” he said.

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