CEOs involved in mortgage crisis defend their pay
WASHINGTON -- Three corporate executives called in for a shaming by Democratic lawmakers Friday defended raking in hundreds of millions of dollars despite contributing to a subprime mortgage crisis that has their companies reeling from losses and the nation on the edge of recession.
"There's a complete disconnect with reality," said Rep. Henry Waxman, a California Democrat and chairman of the House Oversight and Government Reform Committee.
But the CEOs testifying before the committee -- Angelo Mozilo of Countrywide Financial Corp.; Stanley O'Neal, formerly of Merrill Lynch & Co; and Charles Prince, formerly of Citigroup Inc. -- defended their pay as appropriate.
"As our company did well, I did well," said Mozilo, founder of Countrywide, the nation's largest mortgage lender and a key player in the subprime problem. "But when our company did not do well, as in 2007, my direct compensation and the value of my holdings declined materially, which is as it should be."
Republicans on the committee generally agreed. "This is a hearing in search of bad guys," said Rep. Darrell Issa, a Republican from California. "All of you complied with the transparency rules and the best practices rules."
The hearing was the second held by Waxman on the issue of executive pay, which Forbes magazine said averaged $15.2 million for the CEOs in the largest 500 U.S. companies in 2006, an increase of 38 percent in one year.
He questioned how all three CEOs could profit handsomely at a time when their companies were losing billions of dollars and stock values were plunging.
"You're in the middle of an enormous debacle," Waxman said. "It seems like everyone is hurting except for you."
Committee figures showed Countrywide suffered a $1.2 billion loss in the third quarter of 2007 and then lost another $422 million in the fourth quarter. By the end of the year, the company's stock had fallen 80 percent from its five-year peak in February. During the same period, Mozilo received a $1.9 million salary, $20 million in stock awards contingent upon performance and sold $121 million in stock.
Some of those stock sales occurred at the same time the company was borrowing $1.5 billion to repurchase its shares.
Mozilo related how he had started Countrywide in 1969, sitting in the kitchen of his small New York apartment. He said his direct compensation and the value of his stock holdings declined substantially last year and he had not received, and will not receive, a bonus for 2007 and 2008.
Mozilo also said he would give up some $37 million in severance pay if Bank of America proceeds with plans to acquire Countrywide.
The lawmakers also asked why Citigroup, which saw its stock fall 48 percent at the end of 2007 compared with a year earlier, would award Prince a cash bonus worth $10.4 million after he stepped down as CEO last November. He also received $28 million in unvested stock and options and $1.5 million in annual perquisites upon his departure.
"I'm proud of my accomplishments," Prince said, speaking of his contributions over almost three decades to Citigroup's growth and the company's efforts to assist homeowners facing foreclosure.