Sexing Up Books Isn’t the Answer for Banking Woes

February 19, 2009

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Besides paying out billions in dividends and stock buybacks, Citigroup has been very generous with the perks. Add it all up and it’s no wonder trust is less than zero. (Thanks to UpsideTrader for finding the cartoons!)

Sexing Up Books Isn’t the Answer for Banking Woes: David Reilly

Commentary by David Reilly in Bloomberg

Poor judgment by bankers helped get us into this crisis. They relied too much on borrowed money, lent too freely to shoddy customers and got taken in by their own sophisticated financial models.

So you would think the last thing anyone would want to do is rely more heavily on their judgment in the hope they’ll do better next time.

Unless, that is, you’re a banker. Many believe one way to prevent today’s troubles from recurring would be to give banks more wiggle room over how much money they put aside to cover loans that might go bad. That would let them build up rainy day funds when times are good so they can bolster profit during slumps.

Too bad this kind of smoothing of earnings won’t help restore confidence. It also reflects the kind of “it’s not our fault” song and dance that too many bankers are engaging in, both with investors and on Capitol Hill…

Consider that between 2003 and 2007 Citigroup Inc. paid out about $44 billion in dividends and about $22 billion buying back stock. The combined outlay is about four times more than its current market value, and much more than what the government has shelled out to keep the bank afloat…

What’s amazing is that after all this, bankers want even more leeway over reserves for potential soured loans, one of the most subjective areas of the balance sheet. That’s because these estimates involve guesswork about borrowers and economic conditions, now and in the future.

Continue here.

So Long And Thanks For All The Perks

By John Carney at ClusterStock

Top bankers worried about populist anger at the damage they’ve done to the economy might help their own case a bit if they stopped acting like eighteenth century royalty. One place to start: stop treating the perks of their jobs as if they were lifetime grants of royal priviledge.

Citigroup might be the worst offender in this category. The bank is on the edge of being taken over by the government and only continues to operate because of a panopoly of bailouts that would make the CEO of General Motors blush. But that hasn’t stopped them from providing perks to former executives. When he retired in 2006, Sandy Weil famously got a a 10-year “consulting” contract that includes an office, staff and use of corporate jets. John Reed, the former co-CEO, hasn’t worked at Citi in this century, but he’s entitled to an office and secretary for life too. Chuck Prince? Yep. He’s got an office, a secretary and a car with a driver for five years.

We’d say "nice work if you can get it" but as far as we can tell there’s no work involved.

Now comes the word from Bloomberg that Citi director Roberto Hernandez Ramirez will get to keep a bunch of pricey perks after he steps down from the board in April. Last year, those perks cost the company $2.61 million. What do you get for that?