NY comptroller pushes bank high-risk disclosures

AP News
Posted: Feb 04, 2014 5:40 PM

ALBANY, N.Y. (AP) — New York's comptroller is urging two major banks to tell shareholders which employees are capable of exposing them to major losses because of their portfolios and bonus incentives.

Comptroller Thomas DiNapoli, trustee of New York's $173 billion pension fund, filed shareholder resolutions at Wells Fargo and Bank of America. With fund investments in the banks worth $1.2 billion, DiNapoli said he wants to better monitor and limit risk.

"It's something very simple," DiNapoli said. "They should be making assessments of those employees who because of their responsibilities could be posing a risk of significant material losses to the company."

Both banks have requested Securities and Exchange Commission permission to omit the proposals from proxy materials. They say they already file extensive disclosures on risk and top executives' pay. They also say the comptroller's request concerns ordinary business operations that can be properly excluded.

The commission, whose own rule proposal for further risk disclosures issued in 2011 is still pending, won't comment on the bank requests ahead of its decisions. Its proposal was issued under the Dodd-Frank Act to prohibit incentive-based pay that regulators believe "encourages inappropriate risks by a financial institution by providing excessive compensation or that could lead to material financial loss."

In its January letter to the SEC, Bank of America attorney Ronald Mueller wrote that DiNapoli's proposal is far different and potentially applies to any employee who could subject the company to liability through discrimination or harassment of colleagues. "Because the proposal does not use as its starting point the risk arising from incentive-based compensation structures or another significant policy issue such as the Board's oversight of risk, the Proposal intrudes upon the scope of management responsibilities by applying to an overly broad range of employees and employee conduct," he wrote.

Mary Eshet, spokeswoman for Wells Fargo, said the bank appreciates the dialogue with the New York fund but wrote to the SEC explaining the basis for excluding it. "Our public filings contain extensive disclosure about our compensation and risk management practices," she said.

In a further response to the SEC on Tuesday, the comptroller's office said its shareholder resolution is not "overbroad," and that it references "incentive-based compensation" and that "transcends ordinary business matters." It requests the banks' boards prepare a report to identify those workers with the ability to expose Wells Fargo to material losses, including the "short-term and long-term performance metrics" used to calculate their bonuses.

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DiNapoli's past shareholder resolutions have focused on other issues like environmental risk, non-discrimination, political spending and labor standards overseas. In this new emphasis, like the others, he said they're not pushing necessarily for a vote but would like to work out agreements with the banks.

The "high risk, high rewards" approach to investing and emphasis on short-term gains, without a full assessment of possible downsides, was a major contributor to the 2008-2009 meltdown in financial markets, DiNapoli said. "It should be more about long-term sustainable profitability and consistent profits rather than peaks and valleys."