Finance Fatcats Live Large as Firms Crumble

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September 17, 2008

James Cayne, former chief executive of the now-defunct investment banking firm Bear Stearns, who regularly showed up on Forbes' list of the 400 Richest Americans, recently purchased two adjacent apartments at the Plaza with to-die-for views of Central Park and a price tag in the neighborhood of $27 million dollars. Under Cayne's leadership, the company came within hours of failing, until JP Morgan Chase agreed to pay $10 a share for the struggling company with the help of about $30 billion in federal credit. Cayne promptly sold all of his stock and netted a reported $60 million.

It remains to be seen what sort of compensation package Robert Willumstad, CEO of AIG, the world's largest insurance company, will get now. On Tuesday, the Fed promised to back loans to the teetering company to the tune of $85 billion, in exchange for 80 percent of its stock.

Willumstad owns homes on Park Ave in Manhattan; on Long Island, N.Y.; and in Vermont. According to BusinessWeek, in July his minimum cash bonus for 2008 was set at $4 million and his target bonus was set at $8 million.

"I think people are supposed to take away from this that something is incredibly wrong with the system. Sometimes there seems to be incredible reward for failure, " said Kevin Murphy, a professor of finance at USC's Marshall School. Murphy is an expert in executive compensation and said that over the last 15 years or so, compensation in the financial services sector has skyrocketed.

Take Fannie Mae and Freddie Mac.

ABC News Photo Illustration

Executives and CEOs of financial giants --... View Full Caption

CEOs Remain Rich Despite Taxpayer Bailout and Job Losses

Taxpayers are now footing the bill for a bailout of these mortgage and insurance giants and employees of these companies may lose their jobs, and have lost millions in their stock ownership plans. Shares of Fannie Mae are now trading at about 48 cents, down from a high over the past year of just over $70. Still, last year, according to Equilar, an executive compensation research firm, CEO Daniel Mudd received about $14 million in total compensation

And despite his companies' financial woes, Mudd beds down in a 22-room Washington mansion that includes a wine cellar, a home theater, a fountain and landscaped gardens.

In 2006, Freddie Mac's CFO, Anthony Piszel, bought a reported $3.6 million, five-bedroom, 8-bath Colonial in Great Falls, Va., that is situated on five acres "with a lake, a floating staircase and two kitchens." Freddie Mac's shares are hovering around 25 cents a share.

Despite steering their companies into financial disaster, the CEOs of Fannie Mae and Freddie Mac stand to make even more money up to a reported $25 million in so-called golden parachute packages. (The Federal Finance Housing Agency just said that it will block such payments, but that may not be the end of the story -- "I would be shocked if the CEOs don't sue to get those payments," said Murphy.)

The issue of executive compensation and the lavish lifestyle that often accompanies it become more of an issue during an economic downturn, according to Kevin Murphy. "People pay very little attention to executive pay… It wasn't until the markets started dropping and these guys exercised their options that everybody sat up and took notice. People tend to be very forgiving of compensation when it's tied to performance but when the performance isn't there…"

For purely palatial, it may be hard to top Merrill Lynch CEO John Thain's house in Rye, N.Y. Fourteen bedrooms? Check. Swimming pools? Check. Tennis Courts? Check. Lake stocked with fish? Check. The compound is reportedly so big that it spans two different towns, Harrison and Rye. It's believed to be worth close to $10 million.

John Thain has been CEO of Merrill Lynch for less than a year. He received a $15 million cash bonus when he signed on with the struggling company. Just last weekend, Thain engineered the sale of the 94-year-old financial services firm to Bank of America. Thain stands to make an estimated $9 million off that deal.