Bailouts: Watchdog pressures banks on pay
The overseer of compensation at bailed-out financial firms has criticized 17 companies for handing out $1.6 billion in “excess pay” during the financial crisis, said Jia Lynn Yang in The Washington Post. Kenneth Feinberg, the Obama administration’s so-called pay czar, examined pay at 419 firms that received federal assistance during the crisis. He singled out 17 firms, including Bank of America, Citigroup, and Goldman Sachs, for “ill-advised” bonuses and other compensation; Citigroup alone doled out $400 million in excess pay. Feinberg can’t order the companies to recoup the money for taxpayers, but he urged firms to revise their employment contracts to allow them to break pay deals in a crisis.
Feinberg certainly has identified the problem, said John Cassidy in NewYorker.com. “Wall Street is awash in egregious self-enrichment.” But the bigger story is that “nothing has been done to change the pay practices” that contributed to the great economic meltdown in the first place. Wall Street’s incentive structure still rewards short-term profits over smart, sustained growth. Until that changes, traders and other Wall Street players will continue to engage in “excessive risk-taking”—which, as we’ve seen, can be bad for shareholders and taxpayers alike
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Computers: Dell’s $100 million settlement
Dell Computers has agreed to pay $100 million to settle federal accounting-fraud charges, said Dawn Kawamoto in DailyFinance.com. The Securities and Exchange Commission had sued Dell, claiming that from 2001–06 it routinely made its profits seem higher than they were by counting as earnings rebate payments it received from Intel, Dell’s microprocessor supplier. Founder and CEO Michael Dell will also pay $4 million from his own pocket for certifying inaccurate financial statements. He will not be required to resign.
Cars: Ford on a roll
Ford Motor has reported its best quarterly earnings in six years, posting net income of $2.1 billion in the quarter ended June 30, said Ted Reed in TheStreet.com. That’s “a $338 million improvement from the same quarter a year earlier.” Ford CEO Alan Mulally also announced plans to pay off bank loans, predicting that the company would soon “have more cash than debt.”
Commodities: A corner in chocolate
With an “audacious $1 billion bet,” hedge-fund trader Anthony Ward has stockpiled more than 240,000 metric tons of cocoa beans, giving him effective control over the market, said Julia Werdigier and Julie Creswell in The New York Times. With Ward sitting on 7 percent of the global cocoa supply, candy makers worry that “they may be forced to pay him ever-higher prices” for a commodity whose price has already climbed 150 percent since 2008. Ward denies he is “a Bond-style villain bent on taking over the world’s supply of chocolate.”
Toys: Ruling strips Mattel of victory over Bratz
The Bratz gang is going back to MGA Entertainment, said Hibah Yousuf in CNNmoney.com, much to Mattel’s chagrin. A federal appeals court in California last week overturned a 2008 ruling that had awarded the popular Bratz line to Mattel because the dolls were developed for MGA by a designer who was still a Mattel employee. The appeals court found that the designer’s contract was “ambiguous” and that the trial judge erred by not letting the jury decide the issue. Mattel says it will seek a new trial, while MGA is readying a new line of Bratz dolls for Christmas.
