Wall Street ponders pay czar's move on clawbacks

By Steve Eder and Karey Wutkowski - Analysis

NEW YORK/WASHINGTON (Reuters) - Wall Street is warily watching the
Obama administration's pay czar and wondering if he will flex his
muscle to "claw back" past bonuses paid to some of the biggest players
in high finance.

Such a move, which Kenneth Feinberg first publicly hinted at this
past weekend, could roil the industry, which lately seemed to have
successfully toned down congressional efforts to curb outsized pay
packages.

"There are some real concerns about the scope of 'clawbacks' and the
people and payments that they may reach," said Linda Rappaport, who
leads the executive compensation practice at Shearman & Sterling, a
New York Law firm.

Rappaport, who has advised banks including Citigroup Inc (C.N) and Morgan Stanley (MS.N),
both of which received loans from the U.S. Treasury's Troubled Asset
Relief Program (TARP), said the concerns about clawbacks "can influence
the perceived value of incentive awards going forward."

Morgan Stanley has repaid all $10 billion in TARP money it received
last fall. Citigroup has received a series of bailouts, including $45
billion from the Troubled Asset Relief Program, that have left the
government owning a roughly 34 percent stake.

Feinberg heightened speculation he could use his powers when he told
a crowd on Martha's Vineyard on Sunday that Congress gave him broad
discretion to recover compensation paid to bailout recipients.

"It is a very difficult issue," Feinberg said during his remarks at
the island off the Massachusetts coast. "I'm not sure it is a good idea
for the U.S. Treasury to be a bill collector or try to get money back
as an institution."

Still, he said: "There may be some egregious cases where it is in the law, I've got the discretion, and I may exercise it."

Some the financial industry's critics on the left have ideas aplenty about how Feinberg can start using his authority.

"I would love for him to go after all the characters, but whether
that includes some of the Merrill Lynch folks, the AIG people, it is
hard to guess," said Richard Ferlauto, the director of corporate
governance and pension investments for the American Federation of
State, County and Municipal Employees, one of the largest U.S. labor
unions.

"ROOT OF THE CRISIS"

While some have singled out Andrew Hall, Citigroup's energy trader
who is expected to make a reported $100 million this year, Ferlauto
said he would put Joseph Cassano, the former head of American
International Group Inc's Financial Products subsidiary at the head of
the list for a clawback.

Cassano, who headed the unit that underwrote credit default swaps
that triggered more than $25 billion in write-downs, received $34
million in bonuses and $1 million a month as a retainer after he was
terminated in 2008.

"He is somebody who is at the root of the crisis and he was essentially untouched," Ferlauto said.

Feinberg's ability to claw back compensation -- even at firms that
have paid back TARP money -- was tucked into a rule the U.S. Treasury
implemented in June.  Continued...