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February 11, 2009
TARP Banks Oppose Shareowner Efforts to Mandate Accountability
    by Robert Kropp

Shareowner proposal introduced by Harrington Investments would establish Board Committees on US Economic Security to consider the economic impact of bank policies.

The Emergency Economic Stabilization Act of 2008 was passed by Congress in October, in response to the unprecedented crisis in which by then the global economy was thoroughly embroiled. The fundamental component of the Act is the Troubled Assets Relief Program (TARP), which gives broad authority to the Secretary of the Treasury to purchase or insure up to $700 billion of the troubled assets of financial institutions.

Among the banks and financial companies that have received funds under TARP are Citigroup and Bank of America, which together were refinanced by American taxpayers at an estimated amount of $52.5 billion.

But when Citigroup and Bank of America, as well as the other banks that received TARP funds, were asked to account for how they spent the money, they responded with generic public relations statements about balance sheets and making loans. None of the banks provided specific answers, and many refused to discuss the issue at all.

Harrington Investments, a socially responsible investment advisory and shareholder advocacy firm, found that the Bank of America recently used over $7 billion to complete their purchase of approximately 20% of the stock in the China Construction Bank, which is majority owned and controlled by the totalitarian government of the Peoples Republic of China.

Although the US Treasury has purchased preferred stock in these and other financial companies, it has waived all voting rights, effectively leaving no mechanism for US taxpayers to intervene on behalf of their financial interests.

In November, Harrington submitted binding bylaw amendments at Citigroup, Bank of America, and Goldman Sachs that would create Board Committees on US Economic Security. The shareowner proposal argues that the taxpayer-funded TARP effort to stabilize the economy was precipitated by "years of irresponsible lending and business practices. Unregulated trading in speculative derivatives and a general lack of management and board oversight at major U.S. financial institutions has brought the global economy to the brink of disaster."

The proposed bylaw amendment states that as part of their fiduciary duty, the Boards of Directors at these financial institutions should consider the impact of bank policies on US economic security.

In December, Harrington Investments announced that Citigroup and Bank of America opposed its proposal and had written to the SEC seeking permission from the Securities and Exchange Commission (SEC) to disqualify the proposal on grounds that it violates Delaware law.

By February, the extraordinary pressure exerted by the banks has grown to the extent that they have sent a total of eight letters and memoranda to the SEC seeking permission to keep the resolution off the 2009 proxy.

"Our government has handed over literally billions of taxpayer dollars to failed financial institutions with almost no strings attached. Now the banks are attempting to deny shareholders the right to vote on a proposal to help ensure that the banks are doing what they can to protect our country's economic security," said John Harrington, president of Harrington Investments.

Attorney Sanford Lewis, representing Harrington Investments, has sent letters to the SEC rebutting each of the banks' claims.

Shareowner advocates are hopeful that the SEC under the direction of the new chairperson Mary Schapiro will reverse the tendency of the agency during the years of the Bush administration to side with corporate interests when proposals designed to protect shareowner interests are challenged.


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