SunTrust Banks, Inc. Under Investor Investigation Over Alleged Excessive Payouts
After a report concerning questionable executive compensation payouts an investigation on behalf of current long term investors in SunTrust Banks, Inc. (NYSE:STI) over potential breaches of fiduciary duty related to the historical and potential compensation that was awarded certain senior officers and executives of SunTrust Banks, Inc. was announced.
Kenneth R. Feinberg, the Obama administration’s special master for executive compensation, reviewed over the past five months compensations paid to the 25 highest earners of 419 banks between October 2008, when the first US Troubled Asset Relief Program funds were dispensed, and February 2009, when the stimulus bill took effect. Kenneth Feinberg said he immediately excluded most of the 419 companies from his examination because they said they didn't pay any executives more than $500,000, but he wound up citing 17 banks for making troublesome payments. 11 of the 17 banks making troublesome payments have already repaid the government for money they borrowed under TARP.
Mr. Feinberg determined that banks paid out $1.6 billion in unwarranted bonuses, retention awards, stock grants and "golden parachute" retirement packages to their top earners at the height of the financial crisis.
SunTrust Banks, Inc., the diversified financial services holding company located in Atlanta, GA, which provides a range of financial services to consumer and corporate clients, is among the 17 companies. Another of the other 16 companies was Citigroup, which was reportedly identified for having the most egregious compensation packages, according to government officials with knowledge of Mr. Feinberg’s report. Citigroup reportedly handed out several hundred million dollars in pay in 2008 as it neared collapse. Nearly two-thirds of the payouts amount to Andrew J. Hall, owner of a nearly 1000 year old German Medieval Castle, who reportedly received a payout of more than $100 million in connection with spin-off of Citigroup’s Phibro energy trading unit for $370 million to Occidental Petroleum in 2009.
In most cases the banks told Feinberg that they were obligated by employment contracts to pay the bonuses and other compensation, but Kenneth R. Feinberg said to reporters that those 17 companies exercised "poor judgment" for making the $1.6 billion in "ill-advised payments" to their top paid employees shortly after accepting TARP funds from the federal government. "They shouldn't have made these payments,'" Feinberg told reporters. "They were ill-advised. They were troublesome."
According to the investigation by a law firm the investigation on behalf of current long term investors in SunTrust Banks, Inc. (NYSE:STI) stock focuses, among other things, on possible shareholder claims that certain of SunTrust Banks senior officers were unjustly enriched through their receipt of unwarranted, excessive or unearned compensation in past years. Certain senior officers and executives at SunTrust Banks, Inc. (STI) were awarded salaries, bonuses, stock options and other forms of long-term, ‘incentive’ or retirement compensation that were, so the investigation, excessive or unwarranted based on SunTrust Banks performance.
James M. Wells, III, is Chairman of the Board, Chief Executive Officer of Suntrust Banks Inc. He has been Chairman of the Board of SunTrust since April 29, 2009 and Chief Executive Officer of SunTrust since January 1, 2007. While CEO of SunTrust Banks Inc. in 2008, Wells James M. earned a total compensation of $8million, while SunTrust Banks received in 2008 $.485billion TARP funds. At least . SunTrust Banks did not increase its CEO's pay in 2009. CEO James Wells compensation fell in 2009 to $7.7 million.
The investigation by the law firm focuses on claims that the prior compensation awarded at SunTrust Banks, Inc. s now clearly improper based upon its current operating condition.
SunTrust Banks, Inc. reported a Net Income for 2007 of $1.63402billion and while it was able to reporta Net Income of $795.77million for 2008, it had to report a Net Loss of $1.56368billion in 2009. Shares of SunTrust Banks, Inc. (STI) traded in 2007 over $90 per share, but fell in 2008 to $22.45 per share, and continue to decrease in value in 2009 to as low as $7.35 per share. SunTrust Banks, Inc. (STI) shares regained value to recently $25.04 per share, but are still 70% down in value from its 2009 high. SunTrust Banks, Inc. was also already involved in other lawsuits by investors. For instance a lawsuit was filed on March 06, 2009, in the US District Court for the Northern District of Georgia by investors, who purchased their STI stock between July 07, 2008 and January 21, 2009. The investors allege that the defendants made between July 07, 2008 and January 21, 2009, false and misleading statements about SunTrust's financial results and conditions. The plaintiff also alleges that the defendants failed to disclose SunTrust was not as well capitalized as represented, and, notwithstanding the $3.5 billion SunTrust received on November 17, 2008 from the Troubled Asset Relief Program , SunTrust announced that it would have to raise an additional $1.4billion in TARP funds just three weeks later. As SunTrust's true condition slowly came to light in a series of write-downs, reserve increases and capital-raising,
Finally and most importantly the investigation focuses also on possible claims that would allow SunTrust Banks, Inc. (NYSE:STI) stockholders to influence or control future compensation decisions at SunTrust Banks, Inc.
Within the industry huge amounts have been allocated for payout and bonus. Goldman Sachs is reportedly paying out an average of $544,000 per worker, though many could earn several times that amount, JP Morgan Chase’ on average pays about $400,000, and Morgan Stanley pays about $262,000. Morgan Stanley reportedly put aside $8.3 billion for pay and benefits during the first half of 2010, 44% more than during the same period last year. Goldman Sachs put aside $3.8 billion for pay and benefits in the second quarter — equivalent to 43% of total quarterly revenue — in addition to $5.5 billion in the first three months.