Richard Fairbank, chief executive officer of Capital One Financial Corp., made $19.2 million last year, more than Goldman Sachs Group Inc.’s Lloyd Blankfein, as the heads of Main Street banks closed the Wall Street pay gap.
The chiefs of the five largest regional lenders earned 74 cents in 2011 for every dollar awarded to the CEOs of the six biggest U.S. banks by assets, up from 38 cents in 2007, according to data compiled by Bloomberg. The compensation spread has narrowed as the smaller firms, which have on average one-sixth the assets, provided better returns for investors.
Fairbank’s pay was second only to the $23 million awarded to JPMorgan Chase & Co.’s Jamie Dimon among leaders of the 11 biggest U.S. banks by assets. Jim Rohr, head of Pittsburgh-based PNC Financial Services Group Inc., the eighth-largest lender, made $8 million last year, more than the $7 million earned by Bank of America Corp.’s Brian T. Moynihan, who runs the nation’s second-biggest bank.
“It’s like tortoise versus the hare,” said Joseph Sorrentino, a managing director at compensation consultant Steven Hall & Partners. “Wall Street firms are pushing the risk envelope, which in good years meant big payouts, but since the crisis has meant a lot less or no payouts.”
CEO pay at regional lenders is climbing as the traditional banking business of taking deposits and making loans drives profit gains. At the same time, investment-banking and trading losses during the financial crisis, and volatility since then, have damped earnings and curbed compensation at some of the biggest firms.
“You’ve had a handoff in terms of what’s doing well,” said Scott Siefers, an analyst at Sandler O’Neill & Partners LP in New York. “Traditional banking, even though it’s still a challenging environment, seems to be having an easier time.”
The increase in pay for the CEOs of regional lenders comes amid protests over compensation policies at the biggest banks. Citigroup Inc. shareholders last month rejected a $15 million 2011 pay package for CEO Vikram Pandit, 55, after the company’s stock fell 44 percent last year. While the vote isn’t binding, the board will consult with shareholders “to understand their concerns,” said Shannon Bell, a spokeswoman for the firm.
Pandit’s proposed compensation is a “major disconnect” between performance and payout, said Frank Glassner, a San Francisco-based partner at Meridian Compensation Partners LLC, an executive-pay consulting firm.
Occupy Wall Street protesters demonstrated yesterday outside the New York offices of Bank of America and the headquarters of Citigroup and JPMorgan to call attention to income disparity and the role of banks in the financial crisis.
Fairbank’s 2011 compensation at McLean, Virginia-based Capital One, all of which was in the form of stock and options, climbed 7 percent from 2007. He hasn’t received a salary or bonus since 1997. U.S. Bancorp’s Richard Davis, 54, who runs the nation’s seventh-largest lender, was awarded $10.2 million last year, a 52 percent jump from 2007, his first full year as CEO.
Blankfein, 57, pulled in $12 million for his performance last year, an 82 percent drop from 2007. Morgan Stanley CEO James Gorman, 53, was awarded $10.5 million, compared with predecessor John Mack’s compensation of $41 million for 2006. Some Wall Street CEOs, including Blankfein, Dimon and Mack, didn’t take cash bonuses for 2008. Pandit received $1 in salary for 2010.
Goldman Sachs and Morgan Stanley, which derive most of their revenue from trading and investment banking, each reported billions of dollars in losses after the housing market collapsed, and profit hasn’t recovered fully to pre-crisis highs. Shares have fallen 42 percent and 74 percent, respectively, at the New York-based firms from the beginning of 2007 through yesterday.
Shares of Citigroup and Bank of America, which received the largest government bailouts among U.S. banks, have fallen more than 80 percent over the same period.
U.S. Bancorp’s Davis, meanwhile, hasn’t reported a quarterly loss since becoming CEO at the end of 2006, and the drop in first-quarter profit for the Minneapolis-based bank followed eight consecutive gains. PNC’s Rohr has booked one quarterly loss since the beginning of 2007.
The average share-price decline for the five regional banks from the beginning of 2007 through the end of 2011 was 43 percent, compared with 62 percent for the six biggest banks. Last year, the regional banks fell 9.9 percent on average, compared with a 38 percent drop for the top six.
The biggest regional banks rose an average of 27 percent this year through yesterday, and the largest six banks gained 29 percent.
“Regional banks are performing,” said Tim White, a managing partner at Dallas-based executive-search firm Kaye/Bassman International Corp. “It has to do with a consistent and expanding revenue stream.”
The pay figures are based on salaries, stock awards and bonuses granted to CEOs for their 2011 performance compared with what they earned for 2007. Total compensation for the heads of the six biggest banks -- JPMorgan, Bank of America, Citigroup, Wells Fargo & Co., Goldman Sachs and Morgan Stanley -- fell to $85.4 million for 2011, from $147.8 million for 2007. Average pay dropped 42 percent to $14.2 million in the same period. The 2007 figures for Citigroup only measure pay awarded to Pandit, who became CEO in December of that year, taking over from acting CEO Winfried Bischoff.
Total 2011 compensation for the heads of the next five largest banks -- U.S. Bancorp, PNC, Capital One, SunTrust Banks Inc. and BB&T Corp. -- rose to $52.6 million from $46.4 million for 2007. Average pay increased 13 percent to $10.5 million. Figures for Atlanta-based SunTrust are based on what its CEO took home each year, not what he was awarded, because the bank doesn’t report that number in its proxy statements.
“We’re looking at a significant uptick in pay,” said Meridian’s Glassner. “The regional banks are doing considerably better on a sector-by-sector basis and on a bank-to-bank basis.”
The biggest regional bank, U.S. Bancorp, has assets of $341 billion, less than half the size of Morgan Stanley, the smallest of the top six, with $781 billion as of March 31. Average assets at the regional lenders were $256.8 billion compared with $1.59 trillion at the six largest banks.
Spokesmen for Capital One and SunTrust said compensation policies are designed to align CEOs’ interests with those of shareholders. U.S. Bancorp, PNC and Winston-Salem, North Carolina-based BB&T declined to comment.
The CEOs of most of the biggest banks have seen their compensation fall since peaking in 2007. Blankfein was awarded $68.5 million that year, and Dimon made $49.9 million.
Bank of America awarded Moynihan $7 million for last year, compared with the $13 million then-CEO Kenneth D. Lewis received for 2007. The Charlotte, North Carolina-based bank sold $33 billion in assets in 2011 and announced 30,000 job cuts as revenue stagnated and costs from defective mortgages rose. Moynihan’s salary was unchanged, and he didn’t get a cash bonus.
Dimon, whose firm didn’t report a loss during the crisis, saw his pay decline 54 percent from 2007.
One exception: Wells Fargo’s John Stumpf, 58, was awarded $17.9 million for last year, 39 percent more than for 2007. Retail banking has buoyed earnings at the San Francisco-based company, which has increased profit for eight consecutive quarters. While the lender, the fourth-largest in the U.S. by assets, is gaining ground in investment banking, executives have said the firm will avoid riskier businesses.
‘World Has Changed’
Regional lenders, meanwhile, are getting bigger. Capital One’s Fairbank, 61, has spent more than $28 billion on acquisitions since 2005 to expand beyond the company’s core credit-card business. In February, he purchased ING Groep NV’s online U.S. bank, a deal that added $84.4 billion in deposits. PNC this year bought the U.S. retail-banking and related credit-card assets of Royal Bank of Canada, a move that helped PNC extend its reach in the Southeast.
The increase in customers and earnings at regional lenders could lead to higher CEO pay, compensation consultants said.
“You’ve got the bottom group growing up in size, and traditionally that’s been related to compensation going up,” said Marty Mosby, a Memphis, Tennessee-based analyst at Guggenheim Securities LLC.
CEO pay at the largest banks is more dependent on a profit revival, which is linked to global economic improvements, such as a resolution of Europe’s sovereign-debt crisis, compensation consultants said.
“The world has changed in Wall Street pay, there’s no doubt about it,” said Steven Hall’s Sorrentino, who’s based in New York. “Until the economy is growing at a really good rate, profits are back to pre-crisis levels and the stock market is going at a good clip, you’re just not going to see those pay levels.”