Bonus Tax Panned by Bank Sector Analysts

Financial services sector analysts panned a House bill that would impose a 90% tax on bonuses for bank executives making more than $250,000 a year, saying the measure is misguided and could have unintended consequences.

The House on Thursday overwhelmingly passed legislation that would retroactively tax bonus payments to the employees making more than $250,000 at companies that have received more than $5 billion from the Troubled Asset Relief Program, or TARP. The measure came after it was discovered that American International Group (AIG) made over roughly $165 million in bonus payments to employees, even as the troubled insurance firm accepted billions in bailout funds.

Congressional members, regulators and investors have been critical of other firms that doled out bonus payments to their employees in the wake of the financial crisis. NY State Attorney General Andrew Cuomo is probing Merrill Lynch's accelerated payments of bonuses late last year, just prior to its sale to Bank of America (BAC).

But the analysts say that executive pay packages are the least of the worries for financial regulators these days.

Nancy Bush, in an industry note titled "Animal House," says that the "unintended consequences" of the House's actions will result in well positioned banks to "rush to exit TARP."

Banks like JPMorgan Chase (JPM), Wells Fargo (WFC) and others "will seek avenues to get out as quickly as the stress-tests results allow," she writes.

Already several smaller banks have stated their intentions to exit TARP including TCF Financial (TCB) and Iberiabank Corp. (IKBC), among others.