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Author
Michael Virtanen
Date
February 24, 2014

SEC rejects NY fund’s request for bank disclosures

ALBANY, N.Y. (AP) — The Securities and Exchange Commission has rejected shareholder proposals from New York’s comptroller that would have asked two major banks to disclose which employees are capable of exposing them to major losses because of their portfolios and bonus incentives.

SEC staff told Wells Fargo and Bank of America in recent letters “there appears to be some basis” for their view that the disclosures would apply to ordinary business operations and can be excluded from shareholder voting. Both banks sought SEC permission to keep New York Comptroller Thomas DiNapoli’s proposed resolutions out of their proxy statements.

Wells Fargo has said it already makes extensive public disclosures about its risk management and compensation. Bank of America said the proposal was written so broadly it could potentially apply to any employee who subjects the company to liability from discrimination or harassment. Both banks declined further comment Monday.

DiNapoli, trustee of New York’s $173 billion pension fund, asked the SEC’s Division of Corporate Finance to reconsider. His attorney wrote that the agency’s initial characterization of the shareholder proposal “is simply mistaken” and that it applies more narrowly to bank staff getting incentive bonuses.

The shareholder proposals ask each bank’s board to identify employees with the ability to expose them “to possible material losses” based on generally accepted accounting principles. Among any identified, they request the number of such employees by division, their aggregate “incentive-based compensation,” and the portion of bonuses dependent on “short-term and long-term performance metrics.”

With fund investments in the banks worth $1.2 billion, DiNapoli has said he wants to better monitor and limit risk. He said 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.

The commission itself has proposed rules for further risk disclosures 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.” The proposal issued in 2011 is still pending.

“We believe that the incentive compensation paid by a major financial institution to its personnel who are in a position to cause the institution to take inappropriate risks that could lead to a material financial loss to the institution is a significant policy issue,” attorney-adviser Adam Turk from the SEC’s Division of Corporate Finance wrote last week about DiNapoli’s proposed Bank of America resolution. “However, the proposal relates to the compensation paid to any employee who has the ability to expose Bank of America to possible material losses without regard to whether the employee receives incentive compensation and therefore does not, in our view, focus on the significant policy issue.”

In requesting reconsideration, attorney Michael Barry wrote that the comptroller’s request relates directly to that policy issue.

“The proposal seeks only information regarding incentive-based compensation paid to employees in a position to cause BoA to incur material financial loss,” he wrote.

He similarly requested SEC reconsideration of the Wells Fargo resolution.

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