Bank of America's surprise agreement to repay $45 billion TARP aid to the U.S. Treasury dramatically alters the hiring and recruiting landscape. It's a big step toward erasing the boundary between autonomous banks and bailed-out ones that remain subject to government-imposed limits on compensation.
The repayment is expected to occur over the next few days, according to Reuters. Published reports say the repayment will immediately free the bank from White House compensation czar Kenneth Feinberg's authority over salary and bonus levels for the 100 highest-paid employees, even though the Treasury will continue to own BofA stock warrants purchased as part of the bailout. (However, the Wall Street Journal reports BofA officials "have no intention of promptly jacking up its top executives' compensation to the levels that preceded Mr. Feinberg's review.")
Before the news late Wednesday, most observers had expected it to take a year or longer before BofA emerged from TARP. The move creates powerful pressure on the Treasury to quickly reach similar agreements with Citigroup, Wells Fargo and other institutions that remain under TARP.
It also raises the stakes in the recruiting talent war that's likely to break out after the New Year. The rest of Wall Street - including mid-tier investment banks, asset managers and major institutions that already repaid their bailout aid - had assumed BofA and Citi would be effectively hobbled in their recruiting and retention efforts by continued reliance on the government lifeline. While the change won't necessarily make BofA more aggressive in recruiting outside talent or countering rivals' attempts to poach its stars, it certainly gives the bank more freedom to do so.
More important, emerging from TARP should help undo perceptions that career prospects, and especially compensation, are hampered by government control - perceptions that create a stigma against working for BofA or Citi. Just yesterday, a young BofA trader I met by chance told me, "Resumes are flying out of here." That may happen less, or cease altogether, once the bank gets out from under Treasury's heel.
BofA Set to Repay Taxpayers [WSJ]
Bank of America to Repay TARP [Reuters]
Goldman Takes Offensive on Pay [WSJ]
Fidelity, Merrill Urged by U.K. to Push for Bank Bonus Curbs [Bloomberg News]
American Capital Shuts Its Los Angeles Office
Geeks Trump Alpha Males as Algos Dominate Wall St [Reuters]
Brown Rebuffs RBS Complaint, Saying All Banks Face Bonus Curbs [Bloomberg News]