- The Washington Times - Friday, March 20, 2009

NEW YORK (AP) - Citigroup Inc.’s CEO Vikram Pandit pushed back Friday against efforts in Washington to tax bonuses at financial companies that received federal bailout funds, saying it could result in the loss of valuable employees right when they’re most needed.

Pandit, in a memo to employees Friday, said Citigroup has already removed the executives responsible for Citi’s troubles, and that any effort to spread blame “to each and every employee” in the financial industry is unwarranted.

Pandit’s remarks came as lawmakers tried to impose punitive taxes on bonuses at financial institutions following outrage over millions paid to employees at the failed insurance company American International Group Inc., which has received $182 billion in federal aid.

Efforts to stabilize the financial system “would be significantly set back if we lose our talented people because Congress imposes a special tax,” Pandit said, adding that many people will likely “find it difficult, if not impossible, to pay back the bonuses.”

Pandit said the company is working with lawmakers to come to an agreement on a “constructive industry compensation system” and to ensure his employees are paid fairly.

Citigroup itself has received three lifelines from the government as it struggles under the weight of bad mortgage-related investments. Last month, the Treasury Department pledged to take up to a 36 percent stake in the beleaguered bank.

Citigroup paid Pandit compensation valued at $38.2 million last year, according to a regulatory filing. The bulk of the compensation, however, was in stock and option awards granted in January 2008, when Citigroup’s shares were worth about $25. They are now worth around $2.62.

Pandit received no cash bonus, nor did Chief Financial Officer Gary Crittenden.

The bank did set aside big cash retention bonuses, though, for other executives last year.

Voting on the Senate’s version of the tax bill was blocked on Thursday. Senate Democrats said they will try again next week to take up the bill and hope to complete it before April 4, when Congress breaks for a recess.

Critics say the legislation calls into question the sanctity of contracts, and could also deter participants in the bailout program, which could ultimately undermine the intended effects.

“Knee-jerk reactions to these things aren’t the appropriate approach,” said Jim Dunigan, managing executive of investments at PNC Wealth Management. “A knee-jerk reaction typically doesn’t produce your desired result.”

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