Capital Markets

Banks Dodge Backdating Bullet

A study of 12 prominent banks shows generally poor disclosure of option grants, but no firm evidence that any were involved in backdating.
Stephen TaubAugust 23, 2006

As more companies continue to report problems with backdating, one industry — banking — appears to have a relatively clean bill of health, according to a new study by The Corporate Library.

The Corporate Library conducted an analysis of banking in response to a request from the newspaper American Banker., which sought to determine whether any of the banks could become implicated in the backdating scandal.

The newspaper put together a sample list of 12 banks, which included Bank of America, Bank of New York, Capital One Financial, Citigroup, Inc., Commerce Bancorp, Inc., Countrywide Financial Corporation, JPMorgan Chase, Northern Trust, State Street, SVB Financial Group, Wachovia and Wells Fargo.

The list includes the country’s five largest banks, as well as three trust banks, because of their use of stock option compensation to reward executives. SVB was singled out because of its strong association with the stock option culture in Silicon Valley, the report explains.

The Corporate Library found that while initial concerns were raised by the irregular options grant policies practiced at some banks, none of these translated into any real concern that stock options had been backdated for named executive officers, apart from a couple of fairly minor grants over which questions remain.

More specifically, the research firm found that — for the most part — eight of the banks granted options on regular dates, while four did not practice regular annual reward dates with any real consistency.

“However, even at these four banks, nothing about the irregular dates suggests that any of them backdated stock options for named executive officers,” concluded the report, which was put together by compensation specialist Paul Hodgson.

Even so, the report laments that few companies indicated the date of stock option grants, either in compensation committee reports or as notes to the tables describing option grants. There were two exceptions, however: Bank of New York and Countrywide Financial.

“In general, there was very poor — in most cases non-existent — disclosure surrounding why certain dates had been chosen as a “grant date,’” the report elaborated. “Nor were explanations offered for irregular grants or changes in regular annual grant dates.”

Even so Hodgson concluded: “There is no firm evidence” that any bank engaged in backdating of stock option grants.