MBIA Inc (NYSE:MBI) did not award bonuses to its top executives in 2011. The lack of bonuses was put down to regulatory pressure from New York regulators. Top executives including the company’s chief executive, Jay Brown who was accused of insider trading in recent weeks, did not receive any cash bonse for the fiscal year 2011. The primary regulator involved id the New York Department of Financial Services. The regulator told the company that bonuses were inappropriate at this time given the level of assistance the insurer received during the financial crisis. The lack of bonuses given, on the word of the regulator rather than the shareholders points to a feeling of entitlement among regulators on corporate governance.
The regulator is operating under the supposition that its past help to the company allows it to decide how the company operates in the present and the future. This is just one of several similar cases of governmental authorities becoming involved in the dealings of private enterprise. Earlier in March both Fannie Mae and Freddie Mac reduced pay for their top executives and restricted bonus payments. Several regulatory authorities are applying pressure to gain more insight into the internal operations of these companies and have more say in how they operate. The MBIA case is no different. Regulators see pay control as an entitlement they have and an obligation for companies that were saved during the crisis to accept. The regulator was also involved in the settlements MBIA Inc. got in its ongoing lawsuits with several banks over its restructuring. It was during the settlement deliberations that the regulator first thought to curb bonuses. Sources say that MBIA initiall tried to resist the restriction but crumpled under pressure.
The origins of the regulatory controversy are in the 2009 rescue of the company by the Department of Financial Services of New York. At that time the company was facing bankruptcy from its exposure to mortgage backed securities. The regulator okayed a deal that allowed the company to separate it’s traditional municipal bond insurance from it’s pressing liabilities. This allowed the company to continue its operations. That restructuring has resulted in numerous law suits with several banks who saw the restructuring of the company as improper. Initially the company had been sued by a group of eighteen banks most of whom have since settled out of court.