BofA, Citi at Disadvantage Due to Pay Curbs

NEW YORK (TheStreet) -- Some banks, it seems, are more equal than others.

Bank of America (BAC Quote) and Citigroup (C Quote) will be forced to abide by severe pay restrictions unveiled by Treasury "pay czar" Ken Feinberg on Thursday.

Feinberg's hand also appeared to be behind Citigroup's recent decision to sell its highly profitable Phibro commodities trading arm for a song to Occidental Petroleum (OXY Quote). The star trader of that unit, Andrew Hall, was owed $100 million, making him a political hot potato that had to be dispatched with.

While Feinberg's pay limits apply to other companies in which the U.S. Treasury has a big stake, including AIG (AIG Quote), General Motors, Chrysler, GMAC (GJM Quote) and Chrysler Financial, those companies are likely to be less impacted than BofA and Citigroup, because they do not face competitors like Goldman Sachs (GS Quote), Morgan Stanley (MS Quote) and JPMorgan Chase (JPM Quote), which can and will pay their top executives significantly more than their counterparts at BofA and Citi.

Not only will Goldman, JPMorgan and Morgan Stanley be able to pay their executives better than BofA or Citi, they will also apparently be able to continue to make massive trading bets, putting shareholder capital at risk. That means taxpayers are at risk, too. These banks may have paid back the U.S. Treasury's TARP investments, but since they cemented their "Too Big To Fail" status during the crisis of the past year, we all know what happens if too many of their trading bets go bad.

Though some observers, like Rochdale Securities analyst Dick Bove think the days of proprietary trading are numbered, a recent front page article in The New York Times gives further credence to what has been apparent for some time: The Obama administration has no interest in such radical reforms of the banking system.