The unloading of $141 million in options was in preparation for retirement, the Countrywide founder asserts, denying that he was trying to shield himself from the sub-prime meltdown.
WASHINGTON -- Countrywide Financial Corp. founder Angelo R. Mozilo defended his fortuitous stock trades before a congressional panel Friday, denying that he had manipulated his trading plan to unload about $141 million in stock options before the company collapsed.
"You had good timing," needled Rep. Henry A. Waxman (D-Beverly Hills), chairman of the House Committee on Oversight and Government Reform.
By making changes to his stock trading plan, Mozilo was able to vastly increase his stock sales before Countrywide shares plummeted during last year's mortgage meltdown.
Mozilo, 69, maintained that the sales, which have drawn the scrutiny of federal investigators, were prompted by deadlines he faced to exercise stock options as well as the desire to diversify his assets in preparation for his retirement.
"The goal was to reduce my holdings because of my retirement . . . almost all my net worth was in Countrywide," he said.
Mozilo also said that the timing of his stock sales was unrelated to a stock buyback program Countrywide had at the time. Such programs are sometimes used to shore up a company's stock value, but Mozilo insisted that there "was absolutely no relationship between the buyback of stock and my sale of options."
Mozilo's remarks were made at a congressional hearing on the lofty compensation levels enjoyed by certain chief executives even as their companies were hammered by losses in the sub-prime mortgage market. He was joined at the witness table by Stanley O'Neal, former head of Merrill Lynch & Co., and Charles Prince, former head of Citigroup Inc., along with members of their boards.
O'Neal and Prince were pushed out after their firms suffered billions of dollars in losses tied to ill-fated mortgage securities. Mozilo remains at the helm of Countywide, the company he founded, although he is expected to leave after Bank of America Corp. completes its acquisition of the Calabasas-based lender this year.
The hearing was meant to showcase a chief complaint of corporate critics -- that financial rewards for top executives often seem disconnected to the performance of their companies, with the current mortgage crisis offering a particularly stark case study.
Countrywide sold many of the sub-prime loans that are now going under, leading to increasing losses and its eventual agreement to be taken over by Bank of America. Merrill Lynch and Citigroup lost billions of dollars in their own dealings with mortgage-related securities that proved far riskier than advertised.
"The obvious question is this: How can a few executives do so well when their companies do so poorly?" Waxman asked. "Are the extraordinary compensation packages these CEOs received reasonable compensation? Or does the hundreds of millions of dollars they were given represent a complete disconnect with reality?"
Little was resolved Friday. The executives and board members politely defended the pay arrangements; Republicans on the panel argued that the mortgage crisis is rooted in problems more broad based than executive compensation.
"Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual, like an island tribe sacrificing a virgin to a grumbling volcano," said Rep. Thomas M. Davis III of Virginia, the panel's senior Republican. "But in the end it won't answer the questions that need to be answered about corporate responsibility and economic stability."
Reports that O'Neal received $161 million after being pushed out of Merrill Lynch at a time of record-breaking losses attracted attention as well as stout defense. John Finnegan, chairman of Merrill Lynch's compensation committee, explained that the $161 million was not intended as payment for the company's troubles during 2007 but instead reflected benefits O'Neal had built up in the past, including stock and stock options, some dating to 2000 and earlier.
"All were amounts to which Mr. O'Neal was entitled," Finnegan said.
Said O'Neal: "I received no bonus for 2007, no severance pay, no golden parachute."
Lawmakers also questioned the $10-million bonus paid to Charles Prince, the former Citigroup leader who was pushed out after the firm also was hammered by losses related to the sub-prime debacle.
The bonus amount "was less than half the bonus he got in his previous year," said Richard D. Parsons, the chairman of Time Warner Inc. and chairman of Citigroup's compensation committee.
"I'm proud of my accomplishments," said Prince, while also conceding he was "ultimately responsible" for the company's actions, which included a misunderstanding of the risks of mortgage-backed securities.
But attention repeatedly returned to Mozilo, a self-made magnate who helped shape the modern mortgage business. Rep. Eleanor Holmes Norton (D-D.C.) pressed him on a recent committee disclosure that Countrywide had boosted his pay deal after a new consultant hired by the board sought to maximize what Mozilo could receive.
"None of this makes sense to me," said Norton, alluding to e-mails on the matter that were obtained by the committee. "I want to know how it makes sense to you."
Harley W. Snyder, the chairman of Countrywide's compensation committee, said he disagreed with Norton's interpretation of events, although he did not offer a detailed rebuttal.
During the hearing, Mozilo expressed regret for angry language he had used after being disappointed by a 2006 pay proposal, complaining in an e-mail that year about the "left wing anti business press and the envious leaders of unions."
The pay proposal was "sharply different than what I expected," Mozilo said Friday. "I regret the words I used. I tend to be an emotional individual."
After four hours of give and take, legislators remained deeply divided on whether the executives and their pay packages helped cause the mortgage problems that now threaten the U.S. economy.
"This is a mess," said Rep. Elijah E. Cummings (D-Md.), referring to executives "with golden parachutes drifting off into the golf field" at the same time that people "are losing their homes."
But Rep. Darrell Issa (R-Vista) had a different view.
"Mr. chairman, I look forward to finding if something is wrong here," he told Waxman. "So far you haven't found it."