The Obama administration will unveil executive pay rules for firms receiving government aid by the end of the week and will name a pay czar with power to reject compensation plans at firms getting "exceptional assistance", an administration official said.
"In the case of a company receiving exceptional assistance, the special master would have the authority to disapprove of a company's compensation plan if he determined they were paying excessive and unjustified salaries to their top executives," the official said.
In early February, the administration had said it would put a $500,000 (Dh1.8 million) per year cap on the salaries of executives whose firms were being supported with money from the government's $700 billion rescue fund.
Any compensation above that amount was to have been in restricted stock or a similar long-term bonus incentive.
Officials determined that plan was not optimal after Congress passed legislation requiring that bonuses could account for no more than one-third of an executive's compensation. If coupled with the administration's planned salary cap, that would limit annual compensation to $750,000.
The official said the congressional limit on bonuses led the administration to find an alternative way to try to ensure pay practices were not excessive at companies most heavily reliant on government bailout money, such as Bank of America, Citigroup and insurer AIG.
However, analysts said the decision to allow 10 major banks to repay $68bn in government capital offers more evidence the fragile financial system is becoming able to stand on its own. But with some major banks still required to hold tens of billions in Treasury capital, the sector is not out of the woods, said some analysts as well as President Barack Obama.
The actions begin to unwind the controversial move by the administration of President George W Bush to pump hundreds of billions of dollars of capital into banks to stave off a feared meltdown of the financial system.
A number of banks immediately announced their intention to repay money they borrowed from the Treasury under the Capital Purchase Program, formerly known as the Troubled Asset Relief Program (Tarp).
JPMorgan Chase said it would repay the Treasury for its $25bn investment, along with dividends.
Morgan Stanley said it "is pleased to be repaying its $10bn in Tarp capital with an attractive return for taxpayers". Goldman Sachs said it would repay the Treasury's $10bn. "This is a clear signal that the government is not intent on nationalising the banking system as was feared earlier this year," said Ed Yardeni at Yardeni Research.
But excluded from the list are giants Bank of America, Citigroup and Wells Fargo that have received a total of $115bn in bailout capital.
Others will have to wait for approval to repay the government, including auto finance giant GMAC, which recently got an extra $7.5bn.
Elizabeth Harrow at Schaeffer's Investment Research said financial markets gave the news a lukewarm response despite upbeat comments from Treasury Secretary Timothy Geithner.
"Geithner called the repayments 'an encouraging sign of financial repair', but traders weren't so easily convinced," she said.
"Many sector heavyweights, including Bank of America and Citigroup, won't be eligible to start paying off Uncle Sam for at least five more months. In the interim, these banks will face tight government scrutiny." Obama welcomed the news but warned that the troubles of the sector were far from over. Obama said that "it is worth noting that in the first round of repayments from these companies, the government has actually turned a profit". But the president warned "this is not a sign that our troubles are over -- far from it".
The Treasury made the announcement a day after the Federal Reserve said the 10 banks ordered to raise new capital following "stress tests" had developed sufficient plans in place to shore up their finances.
Combined with repayments from smaller banks, the Treasury will have received some $70bn in repayments from $199bn invested in 600 banks.
"These repayments are an encouraging sign of financial repair, but we still have work to do," said Treasury Secretary Timothy Geithner.
Diane Casey-Landry of the American Bankers Association hailed the news as "a sign that investor interest in the banking industry is growing". "The vast majority of the nation's 8,200 banks has been and continues to be well capitalised," she said.
Geithner acknowledged a diminished need for a public-private programme to buy up "toxic assets" in the US banking system but said it would be launched anyway.
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