By: Mike Campbell
The US government bailout package for the American financial sector had certain strings attached – he who pays the piper calls the tune. One such string was a restriction on executive pay; a popular move since financiers were to blame for the global recession and were extremely well paid in the first place (in the public eye, at least) – the political imperative behind this was clear to see.
One recipient of the government funding, to the tune of $45bn, was Bank of America which hit trouble following its take-over of Merrill Lynch. As a condition of this, CEO Ken Lewis received no salary or bonus for his services in 2009. Lewis is due to retire and finding a new CEO with governmental restrictions in place has been difficult. Bank of America has announced that it will start to repay the debt and raise extra capital. This would mean that the bank would free itself from the restrictions and offer the sort of package that a CEO for a major financial institution (rather than the US public) would expect.
The repayment move has surprised analysts who thought that all of the recipients would wait for another year to eighteen months before repaying their debts. It is possible that this initiative could have a domino effect, precipitating other financial institutions to follow suit. Concerns have been voiced that repayment at this stage in the financial recovery is premature.
Germany’s Economy Minister, Rainer Bruederle, has urged banks to make loans to business easier to obtain to avoid the danger of a second credit famine. He has appointed a “credit mediator” to work with banks and businesses to ensure that loans are easier to obtain. If the initiative fails, regulatory measures may need to be introduced.