The Obscenity that Defines American Banking Hits My Town
Living in a fairly small city in the American heartland, I could at least take some comfort that the insatiable greed and irresponsibility that has brought such damage to our nation’s economy was limited, I thought, to the financial bigwigs in New York and San Francisco, and 100 miles down I-90 in Chicago. The executives in those cities, receiving their multi-million dollar bonuses despite their companies’ colossal economic hemorrhaging, were a different breed from those in my own town who act responsibly and continue to be a part of the community.
Boy, am I naïve.
The largest bank in Rockford, Illinois, is Amcore Bank. Its operations are mostly limited to Northern Illinois and Southern Wisconsin. By national standards, it is quite small, with about $4 billion in deposits. Citibank, by comparison, has deposits of $826 billion. During 2008, Amcore lost $97.8 million due to the rapidly rising rate of failed loans. Again, this is pretty small compared to massive losses at AIG or Citi, but significant for a regional institution the size of Amcore.
How does a relatively small bank respond to a loss like this? Here is what Amcore does:
· Freeze wages for the company’s 1300 employees.
· Eliminate the 3% company contribution to employee retirement plans
· Provide a $1.2 million bonus to the company’s top 5 executives.
Yes, you read that correctly. While freezing wages and eliminating retirement benefits for hourly and salaried employees, the company’s top 5 executives will receive, on average, a bonus of $240,000. This is just the bonus, not the standard rate of pay. The CEO of Amcore, William McManaman, will receive a $500,000 bonus.
Granted, this amount pales in comparison to the tens of millions of dollars paid out to a modern-day robber baron like James Dimon, the CEO of JPMorgan Chase. But I can also assure you that a bonus of $500,000 goes a very long way in a small city like Rockford.
Did William McManaman deserve his $500,000 bonus? The numbers speak for themselves. The company lost nearly $100 million last year. In early 2008, Amcore’s stock traded at $21 per share. Today, you can purchase a share of Amcore for $1.51.
William McManaman is illustrative of a major problem with American business. Mr. McManaman came to Amcore in February, 2008. Prior to that, he spent two years as Executive Vice President and CFO at Ubiquity Brands, a maker of snack foods. Prior to that, he spent two years as Senior VP and CFO at First Health Group. Prior to that, he spent 3 three years as Executive VP and CFO at Aurora Foods. In this decade, William McManaman has been a senior executive at four different companies, and has remained with a single company no longer than three years.
When executives simply move from one company to another, their vision is understandably short-sighted. They are excellent at maximizing their own compensation, but have no incentive to oversee the long-term success of the enterprise. That is bad enough for the companies they lead, but it can be disastrous for the communities that rely on the long-term health of their leading employers. While new blood can bring fresh and invigorating ideas to a stagnant company, it does little good to bring in new management if those managers know in advance that they will likely leave in two or three years. Their incentive is to maximize short-term gains at the expense of long-term viability. Only after they are long gone is it possible to judge whether their ideas have been a benefit, or a disaster, to the corporation and its community.