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US stock market daily report (January 28, 2013, Monday)

Contributed by Millennium Traders

A key government oversight unit said Monday in a critical report that top executives and employees at three big companies that reaped some of the largest taxpayer bailouts as part of the Troubled Asset Relief Program implemented to stem the financial crisis of 2008 - American International Group Inc. (AIG), Ally Financial (formerly GMAC) and General Motors (GM) - were paid “excessive” compensation during 2012, even though U.S. Treasury officials who were monitoring their pay, had the authority to limit their packages. "These companies want to be paid as business as usual,” Christy Romero, who runs the special inspector general office for the Troubled Asset Relief Program. “In 2012 they seem to have met no resistance from Treasury. It’s not business as usual because taxpayers had to shoulder their bailouts for many years.” According to the report, 68 of 69 executives received pay of $1 million or more, with 16 individuals receiving pay packages of $5 million or more. The report also notes that 48 of 69 executives, received cash salaries of $500,000 or more and 94% received cash salaries of $450,000 or more. Romero said these payments were generally excessive and many conflicted with a principle set forth by Special Master Kenneth Feinberg, referred to as the “pay czar” who was in charge of the U.S. Treasury’s pay supervision office until September 2010. Romero noted that the principle was that cash salaries should not exceed $500,000 except for good cause and should “in most cases be well under that amount.” The Treasury allowed Feinberg and later his successor Patricia Geoghegan, to set compensation for the top 25 executives at each of these companies, due to the size of their taxpayer-funded infusions. Romero also noted that Feinberg suggested that total compensation at these institutions should target the 50th percentile of comparable positions at similar companies. Included in the report, U.S. Treasury approved pay packages exceeding the 50th percentile of comparable positions at similar companies by nearly $1.7 million, $1.2 million and $850,000 for three employees of Ally’s mortgage subsidiary. The U.S. Treasury reportedly approved all 18 pay raise requests ranging from $30,000 to $1 million, sought by AIG, Ally and GM during 2012. “The Treasury set the pay in a way that was very deferential for what the companies proposed,” Romero said. The Office of the Special Master said that pay raises were permitted in some instances because certain employees were at risk of leaving, were crucial to the company or they were strong performers - according to the report. Geoghegan noted that AIG’s average total compensation for the top 25 employees was at the 48th percentile of similar positions at comparable companies; GM’s was at the 50th percentile and Ally’s average total pay for the top 25 employees was mid-way between the 50th and 75th percentiles of similar positions “due to its unique circumstances.” The 50th percentile is “merely a benchmark” and not a specific limitation. Treasury’s Geoghegan said that the office continues to fulfill its requirements, seeking to limit pay while keeping compensation at levels that enable the firms to remain competitive and repay TARP. The CEO of AIG’s Chartis unit received approval from the U.S. Treasury oversight office approved a $1 million raise for Peter Hancock due to his position as one of the most important people at AIG. For an employee of Ally’s ResCap, the special master office signed off on an increase in salary from $500,000 to $550,000 “knowing that ResCap was planning for bankruptcy” noting that the executive was “critical to successful restructuring.” In December AIG finished repaying its $182 billion bailout and is no longer subject to pay restrictions. Positive return on the bailout was $22.7 billion, per U.S. Treasury.

The U.S. Commerce Department reported Monday that orders for big-ticket U.S. goods jumped 4.6% during December, mostly due to a large batch of orders for Boeing aircraft. Orders rose a smaller but solid 1.3% as booking for military hardware surged, when unstable transportation section was pulled out. Core capital goods - a key barometer of private-sector business investment - rose slightly by 0.2% after two consecutive months of strong gains.

Data released by the National Association of Realtors on Monday showed, pending home sales fell 4.3% during December with pending-home-sales index declining to 101.7 in December from 106.3 in November. "Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options," said Lawrence Yun, NAR's chief economist. "We expect a seasonal rise of inventory in the spring to help, but a seller's market may be developing." Pending home sales were 6.9% higher than during December 2011. Pending home sales activity by region: in the West, pending home sales declined by 8.2%; in the Northeast pending home sales declined by 5.4%; in the South pending home sales declined by 4.5% and in the Midwest, pending home sales gained by 0.9%. "Much of the West is already a seller's market for homes priced under a million dollars, but conditions are much more balanced in the Northeast," Yun said.