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Executives of the Bank of Montreal are trying to shift the blame for $70 million in “golden parachute” payments promised to executives of Milwaukee-based M&I Bank, which Canada’s largest bank hopes to complete its purchase of this summer. “It’s not our affair,” said President and CEO Bill Downe at an annual stockholders meeting this week in Vancouver, British Columbia. The payments have fueled complaints from labor and even business leaders.

“There is no question the payments were large,” Downe admitted. “If we could have negotiated something that was more reasonable, I’m quite sure that we would have tried to do so.”

Mark Furlong and Bill Downe (photo by BMO)

Downe said the payments, which were topped by $18 million for M&I CEO Mark Furlong, were part of contracts signed with M&I long before the Bank of Montreal deal materialized. “We had to honor the contract. It’s not our affair,” Downe said.

But those contracts could not have been honored because an institution like M&I, that received bailout funds from the federal government’s Troubled Asset Relief Program, is ineligible for them. But Bank of Montreal plans to pay back the TARP funds – $1.7 billion – before completing its acquisition of M&I this summer, thereby avoiding any possible run-ins with TARP rules limiting executive compensation.

In a February story, the daily financial services newspaper American Banker described the M&I golden parachutes and those offered to executives in another pending TARP bank buyout, Hancock Bank’s purchase of New Orleans’ Whitney National Bank, as “TARP loopholes.” The story cites five other purchases of TARP banks in which executives did not collect parachute payments.

Whether or not a purchasing bank offers generous severance packages to its acquisition’s executives – even if they were included in past employment contracts – is negotiable, the story says. “Chalk that up to the everything-is-negotiable nature of deals.”

An expert in compensation with the international accounting firm Grant Thornton told the newspaper that golden parachutes “tend to emerge in side deals between top executives at the seller and the buyer, as is the case with (Mark) Furlong. Bank of Montreal agreed to the lump-sum payment to cover what he was entitled to in his M&I contract as part of his agreement to become the CEO of its U.S. commercial and personal bank.”

That bank is Chicago’s Harris Bank, where Furlong will receive an additional $6 million if he stays in his position for at least a year. The future of M&I’s other executives is uncertain, but they’ll receive their parachute payments whether Bank of Montreal retains them or not.

Downe indicated at the shareholders meeting the bank would be keeping some of them. “There are a number of senior executives of M&I that we would like to retain,” he said. “They’re good executives.”

M&I, in bargaining for the payouts, apparently had some leverage: Regulatory filings revealed that another institution, unnamed, was negotiating to buy the Milwaukee bank at the same time as Bank of Montreal, which ultimately outbid its competitor. By contrast, executives at other TARP banks, more distressed than M&I, were denied parachutes in buyouts, the American Banker story notes.

In agreeing to deploy some for top M&I leaders, Bank of Montreal is taking a PR hit and offending some of its shareholders.

Jim Sinclair, president of the British Columbia Federation of Labour and a shareholder proxy, told Downe and other Bank of Montreal leaders earlier this week, “As shareholders, we liked to think there was a value system that went along with this bank that represented the interests of most of the working people who put our money in your bank and the pension holders.”

Sinclair was referring to both the parachutes and donations by M&I executives to past campaigns of Wisconsin Gov. Scott Walker, whose Budget Repair Bill limiting the collective bargaining rights of many public employees has enraged labor unions.

According to a February story in the Business Journal, M&I’s golden parachutes are also leaving a bad taste in the mouths of some local business leaders. “Paying a golden parachute bonus to M&I’s management is an undeserved reward for failure,” said J. Scott Harkness of Provident Trust Co. in Waukesha. Some of the executives promised payments led the bank’s ventures in Florida and Arizona real estate, investments that lost heavily and helped make M&I, a long-time and once rock-solid Milwaukee institution, a target for acquisition.

Pat English, CEO of Milwaukee’s Fiduciary Management, said the payouts don’t reflect well on the business community. “This sort of thing foments anti-capitalist and anti-business sentiment,” he told the newspaper.

The M&I buyout is still undergoing regulatory review. Bank of Montreal hopes to close the $4.1 billion deal (not including the $1.7 billion repayment of TARP funds) by July 31.

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