Wagoner out, bank CEOs safe - huh?!
Apparently, if you're the CEO of an auto firm, you may have to sacrifice yourself to get another bailout. But many bank CEOs have held onto their jobs.
NEW YORK (CNNMoney.com) -- Let's get this straight. If you are a CEO of a bank that's losing gobs of money, the government will bail you out repeatedly and let you keep your job.
But if you're Rick Wagoner, the CEO of General Motors (GM, Fortune 500), you are forced to fall on your sword, or piston as the case may be. And that's after you have had to spend months trying to prove that you have a viable business plan.
No doubt about it, there seems to be a strange double-standard going on.
On the one hand, financial companies seem to have no problem getting more bailout money.
All it takes is for the stocks of big banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) to plunge to multi-year lows for the government to come running. Citi and BofA have each received $45 billion in assistance and hundreds of billions of dollars more in loan guarantees.
GM and privately held Chrysler, on the other hand, have had to jump through several hoops just to get $17.4 billion in loans.
And the two companies only got that assistance from the Bush administration at the end of last year after the Senate refused to back a $18 billion loan for GM and a $7 billion loan for Chrysler. Big Three rival Ford Motor (F, Fortune 500) was also asking Congress for a $9 billion line of credit at the time.
"There seems to be this belief about how you need to treat financial executives with kid gloves because they're needed to dig us out of this mess," said Jamie Court, president of Consumer Watchdog, a nonprofit, nonpartisan, consumer advocacy group.
"The signal that has been sent to Wall Street is that their jobs are not on the line," he added. "There seems to be a double standard between manufacturing in the heartland and the cozy club room that is Wall Street."
So what gives? Is the government being too tough on Detroit? Or not hard enough on Wall Street?
It's probably the latter. Forcing Wagoner to resign, while a surprise to some, is not necessarily a bad call. It can definitely be argued that Wagoner needed to take responsibility for some of the many mistakes that GM has made.
Sure, the current recession has made matters worse for GM and things like the collapse of Lehman Brothers were clearly out of Wagoner's control. But GM's market share has been declining for years and the company even lost money in 2005 and 2006 -- well before the crisis hit.
In a speech Monday, President Obama said that "it will take a new vision and new direction to create the GM of the future."
Still, some wonder why the government hasn't decided that that it will take a new vision and new direction to create the BofA or Citi of the future.
By that same token, some think that Bank of America's Lewis deserves blame for the mess that BofA finds itself in and needs to be ousted as a result. After all, it was his decision to buy Merrill Lynch last September, a deal that led to the bank needing an additional $20 billion in bailout funds.
Compounding matters is the controversy regarding the awarding of $3.6 billion in Merrill bonuses for 2008. New York Attorney General Andrew Cuomo has demanded that BofA provide more details about the payments. BofA has maintained that it would suffer "great harm" if it was forced to reveal the names of bonus recipients.
"The Merrill deal was done with little or no due diligence. Lewis went ahead and took a huge risk," said Michael Garland, director of value strategies for CTW Investment Group, a shareholder activist group that works with pension funds. "He has also been complicit in the Merrill bonus fiasco. He has lost credibility with investors and regulators and needs to be replaced."
CTW is urging investors to vote against reelecting Lewis to the bank's board at the company's shareholder meeting on April 29. Another BofA shareholder, Jerry Finger, is doing the same.
Finger, whose Finger Interests investing firm owns 1.1 million shares of BofA, said he is hopeful that private investors will succeed in forcing Lewis to step down. But he said he's not against the government doing so, especially if it turns out that BofA needs more taxpayer funding down the road.
"The government has not supervised banks as diligently as they have in years past. They have given too much discretion to management," Finger said. "Shareholders also have a responsibility to try and replace management, but if shareholders don't do it, I'd be pleased if the government would."
A spokesperson for Bank of America would not comment on the calls by CTW and Finger for Lewis to be replaced.
Then there's Citigroup. To be fair, Citi CEO Vikram Pandit has only been the head of the bank since the end of 2007, so he's not necessarily the one to blame for leading Citi aggressively into the subprime mortgage market. In fact, former Citi CEO Charles Prince already took the fall for that.
But considering that the bank has lost money during every quarter Pandit has been at the helm and that Citi has since been quasi-nationalized -- the government could ultimately own up to 36% of the bank -- it's fair to wonder why regulators haven't decided to make Pandit follow Wagoner's lead.
Several financial bloggers were discussing that very question in the aftermath of Wagoner's departure.
One blog that aims to keep an eye on Treasury Secretary Tim Geithner and is appropriately called GeithnerWatch, had a post titled "Tim Geithner Fires Rick Wagoner, Still Happy With Vikram Pandit" that ended with this question: "How the heck does Vikram Pandit of Citigroup still have a job?"
And a poster at another investing blog, InformedTrades, wrote the following: "Glad that Obama can remove Wagoner but lets Pandit live and pays the AIG boys...Can you smell General Motorstroika?"
It's a head-scratcher. At the end of the day, it looks like failure in Detroit is being punished by the government -- as it should be now that taxpayers have a stake in GM. But that's not the case so far with Wall Street financial firms.
"I don't understand the thought process that it's OK to screw up a bank but it's not OK to screw up an automotive company," said Barry Ritholtz, CEO and director of equity research at research firm Fusion IQ. "You're telling one kid don't play with fire while the other kid is being given a pack of matches. There should be some consistency."