Penalizing the taxpayer

Why is the Bank of Butterfield still paying out a dividend to common shareholders if it is getting a bailout?  Is that not like taking taxpayer money and handing it directly to the shareholders?  Should there not have been more foresight on the part of the bank executives and subsequently should they not also have to pay the price for having to come to the public begging for a handout?  Would it make sense that any bailouts should come with conditions that include no rewards for shareholders and penalties for executives?

The Royal Gazette reported yesterday that the bank had cut, but not eliminated, its dividend as it is being bailed out by the Bermuda government.

[The Bank of] Butterfield will issue $200 million of non-convertible preference shares to be guaranteed and/or purchased by Government.

The bank has also cut its quarterly dividend to eight cents a share.

A dividend of 8 cents a share?  Shouldn't that be 0 cents a share?  Especially considering that we're taking taxpayer money (your money) and handing it directly to shareholders of the bank to reward them for a bad investment.  Rewarding a bank that has made poor choices, their shareholders for making the poor choice of investing in the bank and penalizing the taxpayer with future dept.  You may not have wanted to get into the banking business, but now you are.

Then we get to executives and their poor choices that got us into this mess.  These executives should have done the due diligence of fully understanding what they were investing in before investing in it.  To lose one's own money on a gamble is one thing, to have to go to your neighbours for a handout because you made a bad bet is a whole different ball game.  These executives made poor choices and subsequently should they be rewarded for having done so?  Should taxpayer money be used to fund big salaries and fancy bonuses for under performing executives?  The Bermuda Government should take another page from the Obama book and require that any firms receiving a bailout cut executive salaries.  What is a reasonable level?  How about to no higher than what our Premier makes for the CEO and no higher than what any Minister makes for any other executive?

Should bailouts come hand in hand with a cut of all dividends?  Should executive pay also be reviewed and trimmed?  Penalizing both shareholders and the bigwigs for their lack of foresight?  Does it make sense that the executive be rewarded for not fully understanding what was happening in their business and the ultimate accountability falls upon them?  Further if you, the taxpayer, are required to take the risk of bailing out the Bank of Butterfield with extra capital shouldn't the investor be penalized for putting you into this position?  Are dividends and big salaries acceptable if it's like taking taxpayer money and handing it directly to shareholders and executives?  It is your money after all.

Comments

[Justin]

According to the bank's press release on their website, the dividend is being paid with $0.04 in cash and the remaining $0.04 will be paid in common shares. Thus, the cash dividend is $0.04 per share. Also, the government hasn't paid anything yet. Who knows, the bank might be able to raise the $200M in the private market? I think you're jumping to conclusions prematurely.

[Denis]

Justin,

Clearly I'm out of practice. I wrote this based upon the original news release before more info was available, thus my conclusions need work.

I'm weary of the deal as a whole however even though government likely has no alternative.

Perhaps when I've had some time to think it over I'll follow up.

Thanks for still reading,

Denis