Looting Much?

As Silicon Valley Bank moved toward an increasingly risky portfolio, senior executives scored increasingly remunerative pay packages.

It's almost like they gamed the system to reward themselves for destroying the bank.

It's EXACTLY like they gamed the system to reward themselves for destroying the bank.

Executive pay at Silicon Valley Bank soared after the bank embarked on a strategy to boost profitability by buying riskier assets exposed to rising interest rates, according to a Financial Times analysis of securities filings and people familiar with the matter.

The jump in pay for chief executive Greg Becker and chief financial officer Daniel Beck was a result of large multiyear bonus awards pegged to the bank’s return on equity (RoE), a key measure of profitability that rose sharply between 2017 and 2021, the filings show.

Becker’s cash bonus peaked at $3mn in 2021, more than double the amount he received four years earlier. Beck earned a $1.4mn bonus in 2021, more than four times the amount he received in 2017 after joining the company.

The higher bonuses helped push Becker’s total pay to $10mn in 2021, an increase of almost 60 per cent compared with four years earlier. Beck earned nearly $3.8mn, a jump of roughly double over the same time period.

Current and former SVB executives told the Financial Times that SVB boosted returns by buying long-term paper, especially mortgage bonds, that bolstered earnings because they generated higher yields. The strategy backfired when interest rates rose sharply and depressed the value of the bonds.

If you pay people for bad, short-sighted management, you get bad, short-sighted management.

In related news, the founder of First Republic Bank, and his relatives, receivied similarly inflated pay as they destroyed that bank:

First Republic Bank paid family members of its founder, James Herbert, millions of dollars for work at the lender in recent years, including for consulting services related to interest rates and risk, according to public disclosures the bank made as part of annual filings. 

The bank paid Mr. Herbert, who was chief executive before stepping into the executive chairman role last year, $17.8 million in 2021, the bank’s disclosures for that year said. The compensation was more than CEOs at most similar-sized banks.

A consulting company owned by Mr. Herbert’s brother-in-law earned $2.3 million for advisory work related to its “investment portfolio, risk management, interest rate and economic outlook and other financial matters” in 2021, it said in an annual proxy filing filed last spring. First Republic also paid Mr. Herbert’s son $3.5 million to oversee a lending unit at the bank, the disclosures said. The two family members were paid similar amounts in 2020.

First Republic, which was the country’s 14th largest bank measured by assets at the end of 2022, has been at the center of contagion fears in the U.S. banking system, with its stock down over 90% in the past three weeks. Known for catering to wealthy individuals, the bank has raced to stem a rush of depositors pulling funds amid concerns that First Republic has some similarities to now-failed Silicon Valley Bank.

………

Asked about the payments to Mr. Herbert’s son and brother-in-law, a spokesman said the bank has a policy for transactions with family members “and fully discloses such transactions each year.” He said executive compensation in 2021 reflects that the company “outperformed industry peers and the S&P 500 from 2016 to 2021, and delivered strong shareholder returns.”

These failures are not an artifact of incompetence.  They are not mistakes.

This is deliberate and sustained looting.

Lock them up.