Pay Czar's First Challenge

In what will probably be the first major clash between a bailed-out bank and President Obama's newly appointed "Pay Czar" Kenneth Feinberg, the head of Citi's Phibro energy trading business is pushing the struggling bank to honor his $100 million compensation package. I understand the need to honor existing contracts, but if the government hadn't stepped in with a $45 billion bailout, the bank would have gone bankrupt and the contract would be meaningless.

One thing to remember is that when Citigroup agreed to take money from the TARP, it also agreed to follow the stipulations of the contract. Section 5.3 of the TARP states that Congress has the ability to put new conditions or requirements on any bank, even retroactively, who took money from the program. So, if Citigroup didn't want to be subject to an agreement that gave the government unilateral power to change the contract, they shouldn't have taken the money. I find it poetic justice that the banks are complaining because they didn't read the fine print of the loan. Now they know how their customers feel.

Citi is also unique out of the TARP recepients in that, while competitors are trying to get out of the TARP by repaying the money, they have started the process of converting the governments preferred shares into common equity. This means that We the People are about to have a 34% ownership stake in the bank. So why shouldn't we have a say over their executive compensation?

This story should be interesting to follow.