Bank Got Bailout, CEO Got Golden Parachute

by Paul Kiel, ProPublica

The South Financial Group, South Carolina's largest bank, announced earlier this week that it had been approved to receive $347 million from the U.S. government. But the bank's founder and longtime CEO Mack Whittle won't be sticking around. He retired with an $18 million severance package in late October, two months earlier than had been expected. Because of the timing, he's free from golden parachute limits (PDF) that come with accepting bailout money.

"It smells like he moved the retirement date up to avoid [those limits]," said Paul Hodgson of the Corporate Library, a corporate-governance research firm. And the government's millions "make it a lot easier for the company to pay it out."

The move has proven controversial. After South Carolina's The State reported on suspicions of the deal's timing, Gov. Mark Sanford (R) called for the Treasury Department to investigate and said Whittle seemed to be "gaming the system." A spokesman for the governor said he had yet to receive a response from Treasury.

"The whole idea was to avoid these types of arrangements," Laurence Wagman of compensation consulting firm James F. Reda & Associates told us. The Treasury "doesn't want the companies receiving taxpayer funds, terminating executives and having them walk away with excessive golden parachutes."

Whittle's plans to retire had been announced Sept. 5 -- before the worst of the credit crisis and a month before Congress passed the $700 billion bailout. The company said then that Whittle would retire by year's end.

But on Oct. 24, shortly after the bank announced that it would be applying for bailout money, the bank decided that Whittle would be retiring early the next week. Whittle's successor had yet to be named, and no reason was given for the earlier date.

The $18 million package "reflected [Whittle's] 20 year career with [South Financial Group] as its founder and only CEO," the bank said in a statement. (We called the bank and they referred us to the statement.) In addition to a $4 million cash severance payment and $9 million pension benefit, the plan came with a number of side perks like a $133,920 auto allowance and $75,000 for "financial planning."

Under Whittle, the bank grew to be the largest based in South Carolina, with $13.7 billion in total assets and 180 branch offices in Florida, North Carolina and South Carolina. But the bursting of the housing bubble has hit the South Financial Group hard. Since the beginning of 2007, the bank's stock has fallen sharply from above $26 to about $3.50 today. The bank booked a $25 million net loss in its third quarter.

Under the Treasury's program to buy equity stakes (which has so far approved investing $177.6 billion in 76 banks), the banks are restricted in the amount they can pay to departing top executives. The amount is capped at three times the exec's average annual compensation.

That can still add up to quite a hefty sum for a CEO who makes millions every year. South Financial has said that "less than 15%" (or about $2.7 million) of Whittle's package would have been over that limit.

Pensions, for example, can still be unlimited. So Whittle would still have gotten his $9 million pension benefit.

In fact, the widespread ingenuity of executive compensation packages means that an executive at a bank that's taken federal money could walk away with tens of millions even while abiding by the limits. The Wall Street Journal reported last month that the country's biggest banks owe their executives billions in deferred pay and special executive pensions.

Democratic congressional leaders urged the Treasury last month to prohibit golden parachutes altogether. Treasury officials have said that the executive pay limits are designed to curb excesses while encouraging widespread participation in the program.

Meanwhile, corporate governance analyst Hodgson said that Whittle's deal -- nominally a retirement, but treated as a severance -- is all too typical of golden parachutes: "If you and I decided to retire, we might get what's left of our 401(k). But for some reason the rules seem to be different for executives. They get severance even though they're retiring. There's no logic to it at all."

Paul Kiel is a reporter for ProPublica, America's largest investigative newsroom.

Comments

[GhostofBillHicks]

In America,crime pays...IT PAYS DAMN GOOD!!

[munki]

absolutely wrong... why did this happen? we asked not to do so as part of taxpayer to give bailout plan... let them file chapter 11 and we should reorganize and get those money back so we can get healthier economy... from a hard working single parent

[Onefamily]

Once again I am sickened by a government that cannot / will not build smart and effective that's protect 'the people' while providing a foundation for true open market capitalism.

Another example is the Senate cheering on Ted Stevens.

I can only hope President Elect Obama will be 'the change that we need'.

[plaidsportcoat]

War on the Rich - it's the ONLY answer. WE are suckers for not fighting back, and sitting around on the losing end of Class Warfare, so WE need to attack and make big War on the Rich. duh

[RJII]

the system works perfectly for the rich.

[chartreuse]

what nonsense ... he should return this money ... the 18 million was to keep the bank afloat not his salary ...

[LaFilleEnRose]

Is this what our newly elected officials and the old ones call "oversight?" Is oversight merely reporting to us poor taxpayers what the hooligans have done? If oversight has no teeth, who the hell needs it. It just gives us headaches. Get that money back! That's oversight.

[bthechangeyouseek]

Just as bankruptcy has rules that review the previous 90-180 days for consumers, so should be the rules for companies whose CEOs walk away with millions while the company flounders. It's unacceptable.

Insider knowledge and taking advantage of the company when it's down. These CEOs need to be charged.

As Paulsen has changed how the money was to be spent after it was approved, so should the oversight be changed to charge these thieves with insider knowledge.

[PhilipTaylor]

CRISIS OF FINANCIAL FEES
(including salaries, bonuses, and parachutes)

FEES by Banks and INVESTMENT BANKS:

1. $10's to $100's Million in salaries, bonuses, and other incomes
2. Incrementally High "TRICKY" adjustable mortgage Fees for subsidiaries of Investment Banks
3. High Second Mortgage Fees above property values
4. "Fake" Appraisal Fees
5. Selling loans that exceed value of the property with MORE Fees added
6. Slice and Dice mortgages into packages (Derivatives) by Banks for "MASSIVE" Added Fees
7. Rating Agency Assigns "AAA" rating to High Risk Derivatives and takes Large Fees
8. Sell Derivatives to Customers including HIGH Fees
9. Front end and Back End Insurance Fees
10. Financial Product Maintenance and Customer Service Fees

Note: The Reason Banks will not MARK TO MARKET and want that removed:

With decline in home values some products now would take a 80% tp 90% write-off of the Fees paid by Derivatives Clients, showing the "degree of greed" in this FEE driven system.

[OB-GYN]

How ridiculous! Treasury should just say "no" to this kind of backdoor scheme, undoubtedly happening all around the country.

Great, we taxpayers pay this bank a $347 million bailout, the exec takes $18 mil and flees, and my kids college educational fund is down 40%, not to mention we parents retirement (and we're not young).

I hear you radiclib. Our government through this bailout, Wall Street through their greed and lack of restraint and all banker thieves contributing to our economic mess will eventually have to answer to we American taxpayers, one way or another. Class warfare revenge for decades to come, brought to you by middle class Americans through their powerful votes, sprinkled with staged revolts.

[KillTheMessenger]

Hmmm... I thought I told you NOT to invest in stocks. See, you should have listened to me.

:-)

[poppaculture]

the company my dad worked for is under new ownership, and the insurance benefits for his widow (my mom) have been stopped. Things changed is the response / rationale. --- I suggest we do the same for Mr. Whittle.

[LRM216]

How utterly nauseating that is. If she is not medicare age, can she check with social security to see if she can pick up some sort of coverage through his death benefits?

[KillTheMessenger]

Smart guy. Maybe they should have kept him?

[radiclib]

.
.
Do you ever turn on your radio and hear the hectoring voice of Sean Hannity charging ``Liberals are urging `Class Warfare!'''

Do you ever take him seriously? Do you ever wonder what would happen if the great mass of the American people took Hannity up on his charge?

What would class warfare ------ the real thing ----- be like?
What would cause it?
.
.

[bluguy8]

hopefully cause him to lose his job

[SurrealPumpkin]

Class warfare is going on, we just made a mistake about who was the aggressor.

[joebaggadonuts]

Class warfare has been in progress for a long time. BO'Reiley misnamed his part in it , calling himself a "culture" warrior.

[GhostofBillHicks]

"class warfare","income redistribution"are some of the euphemism that people like Hannity and O'Reilly use to end any rational discussion about the REAL problems of income inequality in this country.
That's like the term "entitlements" is used to put down working people for getting something for their tax money like Social Security,or Medicaide.Your employer takes money out of your paycheck to pay into the system,BUT,somehow when you go to collect it your asking for a "hand-out",as if to say that your not "entitled" to get something for the money you paid into it.