WASHINGTON, DC - Citigroup, recipient of $50 billion in US government funding, is requesting the Treasury's permission to pay out special bonuses to a number of key employees.
Citi is reportedly looking into separating parts of its business to escape restrictions, especially its lucrative energy trading unit Phibro. The bank is already facing criticism for paying out a $100 million windfall last year to Andrew Hall, the director of Phibro.
The US government will become Citi's largest shareholder next month - receiving a 36% share, having already pumped billions into the bank through the Troubled Assets Relief Program (Tarp). Citi pocketed $50 billion in direct taxpayer aid and received government guarantees against losses on $301 billion of its assets.
In an April meeting with Treasury secretary Timothy Geithner, Citi's chief executive, Vikram Pandit, made the case for special bonuses based on stock-based compensation schemes. Pandit said "retention" payments were necessary to keep valued staff from defecting.
Phibro has remained profitable for the bank despite massive losses elsewhere in the group. Citi's investment banking arm reported $667 million in pre-tax revenues from commodity trading in 2008, the lion's share of which, it said, came from Phibro.
Pay restrictions woven into US bail-out contracts mean the bank is prohibited from handing out large bonuses. The American Recovery and Reinvestment Act limits bonuses for the top 20 employees to a third of their overall pay, while the earlier Tarp legislation puts a 90% surcharge tax on bonuses.
According to one scenario reportedly presented to Citi managers, the bulk of bonuses would come from stock taking three years or more to mature, with the final payout worth at least 50% of an employee's cumulative pay over the same period.
Tarp banks are already reported to be looking for other ways to raise capital to repay their government loans early, to shake off the yoke of government interference. Goldman Sachs was the first to move towards paying back its $10 billion bail-out, through a private investor share issue to raise $5 billion.
Executives at rival bank Morgan Stanley - also a recipient of $10 billion in government cash - are reported to be considering a plan to spin off the bank's proprietary-trading business to insulate it from federal bonus rules.
The week in Risk.net, May 19-25 2017Receive this by email