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| The subprime meltdown has cost chief executive officers at three major financial firms their jobs. But a report released earlier this month estimated two of the terminated chiefs will receive over $200 million in severance pay while other major firms would be liable for $800 million if their CEOs are terminated.
Among top executives to lose their jobs so far because of the subprime crisis were Mark A. Ernst, chairman, president and CEO of Option One Mortgage Corp. parent H&R Block Inc.; Charles Prince, chairman and CEO of Citigroup Inc.; and Stan O’Neal, chairman and CEO of Merrill Lynch & Co. As of Nov. 6, the value of the severance package for Citi’s Prince was estimated at $39 million while Merrill’s O’Neal’s was $162 million, according to the report, Subprime Golden Parachutes from The Corporate Library. In addition, Citi will provide Prince with an office, an administrative assistance, a car and a driver for five years unless he finds a job elsewhere. The report, authored by Senior Research Associate Paul Hodgson, looked at a total of 16 companies. “The 16 companies in the study were selected because they have either experienced or could potentially experience significant write-downs and/or losses as a result of the subprime mortgage crisis,” the report said. Among all the companies in the report, it was estimated it would cost $1,062 million to terminate the CEOs. But the report also noted that had the CEOs been terminated at the end of 2006 — when share prices were higher, investors would have doled out another $360 million. Other CEOs with huge packages Lehman Brothers’ Richard S. Fuld Jr., at $299 million; Bank of America’s Kenneth D. Lewis, with $120 million; and Goldman Sachs’ Lloyd C. Blankfein, whose package was estimated at $76 million. “It has already been demonstrated that terminating CEOs is a very expensive business, with or without an employment agreement that might stipulate what severance benefits would be,” Hodgson wrote. “This is because the amount of ‘walkaway’ is largely governed by the value of equity that will vest acceleratedly on a termination and the level of vested retirement benefits.” The median severance package was $35 million, while the average was $66 million, according to the study. Termination agreements for the CEOs of Fannie Mae and Freddie Mac, whose combined $40 million packages were on the low end of the scale, are overseen by the Office of Federal Housing Enterprise Oversight, the report indicated. “In contrast with many of the other CEOs in the study, Kerry Killinger, CEO at Washington Mutual, has severance benefits that are largely made up of cash and retirement benefits,” The Corporate Library said. “This is primarily because his unvested stock options are now underwater, his performance shares are unlikely to vest, and his restricted stock has lost a great deal of its value.” |
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Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com. e-mail:Â mtgsam@aol.com |
