Capping a year in which he faced shareholder fury, regulatory scrutiny and was stripped of his chairman post, outgoing Bank of America Corp. CEO Ken Lewis will get no salary or bonus for 2009 under an agreement with the government's pay czar.
Kenneth Feinberg, the U.S. Treasury Department's special master for compensation who is scrutinizing pay packages at bailed-out banks, suggested that Lewis should get no pay for the year. Lewis agreed, Bank of America spokesman Robert Stickler said Thursday.
In fact, Lewis will pay back about $1 million he has received so far out of a $1.5 million annual salary.
"He will write a check to the company," Stickler said, adding that Lewis agreed to the proposal because he felt it was not in the bank's best interest "to get into a dispute with the paymaster."
The clawback provision doesn't apply to Lewis' previously negotiated retirement package, estimated to be worth tens of millions of dollars.
Wall Street has been eagerly awaiting Feinberg's decisions about pay for 75 of the highest-earning executives at seven firms that got the most taxpayer money. Other companies under Feinberg's scrutiny include American International Group Inc., General Motors, Chrysler and Chrysler Financial.
Treasury spokesman Andrew Williams declined to comment on Lewis' compensation, saying only that Feinberg would seek to "strike the right balance" in setting pay for top executives of firms that received significant government help.
Many had expected that Feinberg would seek to curb compensation levels. But now that Feinberg has set a precedent for a clawback in pay, eyes will turn to the fate of other Wall Street CEOs, such as Vikram Pandit, whose Citigroup Inc. also has received $45 billion in bailout aid.
"The government is proving they are serious about taking money back for poor performance," said Richard Bove, an analyst with Rochdale Securities, in an interview Thursday evening.
Mark Williams, a finance professor at Boston University and a former Fed examiner, expects that Citigroup and Wells Fargo & Co. executives could also see similar requests from Feinberg.
"It would be inconsistent not to," he said in an interview Thursday.
A Citigroup spokesman declined to comment.
Williams said that as Wall Street earnings improve, there is going to be more pressure on the executives making decisions about how the money will be spent.
"The big discussion is really between those who say we need to focus on retaining talent and attracting top people to help us turn around, and those who think the profits should be used to restore capital that has been eroded through years of excessive risk-taking," he said. "Even whether or not to continue to pay dividends to shareholders will be a question for these banks for some time."
Lewis, 62, hastily announced last month that he will step down as CEO by Dec. 31, ending a tumultuous year in which BofA has faced accusations it misled shareholders about its acquisition of the investment bank Merrill Lynch & Co.
BofA had no successor in place, leading many to think that his quick exit had surprised the board. It has said a replacement would be chosen before Lewis leaves.
BofA Friday reported itin the third quarter as loan losses kept rising, providing further evidence that consumers are still struggling to pay their bills.
The bank, which lost $2.24 billion after accounting for preferred dividends, said its losses for failed loans came to almost $10 billion during the July-September period, up almost $1 billion from the second quarter. The bank also added $11.7 billion to its reserves to cover bad loans.
Bank of America's results were aided by profit from investment bank Merrill Lynch, including income from bond, stock and currency trading.
The Merrill deal is being investigated by both the Securities and Exchange Commission and New York Attorney General Andrew Cuomo. The AG's office is trying to determine whether BofA misled shareholders about $3.6 billion in bonuses paid to Merrill employees and the investment bank's mortgage lending losses, as well as whether BofA failed to tell shareholders that it considered backing out of the deal before it closed on Jan. 1.
Bove said that while the Merrill acquisition was a "brilliant stroke that will benefit the bank," BofA has suffered significant loan losses due to "horrendous underwriting policies." He estimates the bank could post
losses on $55 billion worth of bad loans this year.
Lewis was first hired as a credit analyst in 1969 at North Carolina National
Bank, in Charlotte, N.C. That bank was a predecessor of NationsBank and later Bank of America. He moved through various positions until he was named CEO of Bank of America in April 2001 and also served as chairman until angry shareholders removed him from that post earlier this year.