A bonanza for lender’s executives
The top two executives of beleaguered Countrywide Financial Corp. will pocket $19 million in stock next week, according to a regulatory filing. It’s the start of a series of multimillion-dollar payments expected to go to the pair before and after the company’s pending takeover by Bank of America Corp.
The largesse for Countrywide Chief Executive Angelo Mozilo and President David Sambol drew immediate fire from Sen. Charles E. Schumer (D-N.Y.), a member of the Senate Finance Committee, whose members have been debating the merits of a government bailout of consumers and mortgage lenders caught in the sub-prime meltdown.
“It’s perverse for Bank of America to reward the principal architects of the bad business practices that caused this housing crisis,” Schumer said in a statement. “Bank of America will hopefully correct the bad practices Countrywide put in place. But enriching people who specialized in deceiving borrowers for the sake of their bottom line will not help that cause.”
The payments of stock valued at $10 million for Mozilo and $9 million for Sambol were disclosed in a regulatory filing late Thursday by Bank of America. The payments, described as “performance-based” stock rights and grants, are required by agreements the executives struck with Countrywide less than a year before the sub-prime meltdown forced the distressed Calabasas lender to sell itself, according to the filing.
A series of additional payments will be triggered by the takeover, the filing says.
Mozilo, who is expected to retire when the deal takes effect, previously agreed to give up $36.4 million in cash severance benefits. But he will receive after his departure company-paid life and health benefits worth $21,084 and medical benefits worth an estimated $85,000.
The takeover also will lift restrictions on 229,762 shares of stock already granted to Mozilo. At Friday’s closing price, the shares were worth $1.3 million.
The $10 million Mozilo is to get next week is technically not a result of the merger. But because it’s restricted Countrywide stock that will be converted into unrestricted Bank of America shares when the merger goes through, the deal means the 69-year-old CEO will be able to walk away with $11.4 million, in addition to a pension valued at $23.7 million and deferred compensation valued about a year ago at $20.6 million.
Bank of America also disclosed in the filing that it would pay Sambol $28 million to stay with the company after the combination.
Bank of America wants Sambol to lead the bank’s consumer mortgage business when the deal is complete. However, he would get so much to quit in the wake of the merger that the bank said in the filing that it needed to give him an incentive to stay.
Bank of America created a $20-million “retention account” that would be payable to Sambol in two equal installments over the next two years. It also agreed to grant him $8 million in restricted stock that would vest over three years. His base salary will drop to $500,000 at Bank of America, from $1.4 million at Countrywide, the filing says. And, instead of getting the equivalent of $9 million in Countrywide stock, he’ll get 150,000 Bank of America stock options.
Bank of America also agreed to pay three other Countrywide executives 125% of the cash severance they would have otherwise gotten by departing, according to the filing. And three Countrywide directors will indirectly benefit from the merger by being able to donate $200,000 to $400,000 of the company’s money to the charities of their choice.
Compensation critics said the filing was a tragic addendum to the Countrywide saga. The company was once the nation’s largest mortgage lender, and Mozilo one of the most highly compensated executives in the country.
However, as the real estate market began to sour last year, an increasing number of Countrywide’s borrowers began to default on their loans.
At the same time, Mozilo began aggressively selling off hundreds of thousands of Countrywide shares. Between October 2006 and October 2007, as the company’s stock price plunged, Mozilo sold $140 million in Countrywide stock. The Securities and Exchange Commission has launched an investigation into those sales.
As the credit crunch made it impossible for Countrywide to borrow and sparked rumors of the company’s bankruptcy, the company agreed to a takeover by Bank of America for about $4 billion in stock.
“This company was driven to the brink of bankruptcy and the individuals responsible are getting millions,” said Daniel Pedrotty, director of the office of investment at the AFL-CIO. “Just when you think the situation couldn’t get any worse, this company demonstrates again that they have no regard for how shareholder assets are spent.”
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