Crisis Is Over: For the Wall Street Bonuses

by Dollars and Sense

In the second quarter, Morgan Stanley lost $1.26 billion. However, it managed to set aside $3.9 billion for bonuses during that time. In fact, despite 3 straight quarters of losses, it has set aside over $6 billion for bonuses. Looks like they're going to need another bailout soon.

From the Washington Post:

NEW YORK, July 22 -- Wall Street's biggest banks are setting aside billions of dollars more to pay their executives and other employees just months after these firms were rescued with a taxpayer bailout, renewing questions about compensation practices in the aftermath of the financial crisis.

The recent outcry over bonuses at bailed-out firms prompted public alarm and promises of reform from financial leaders, who acknowledged that pay and bonuses should not reward risky short-term business decisions -- such as those that contributed to the meltdown -- but instead longer-term financial performance.

But Wall Street, helped by improving profits, is on track to pay employees as much as, or even more than, it did in the pre-crisis days. So far this year, the top six U.S. banks have set aside $74 billion to pay their employees, up from $60 billion in the corresponding period last year.

The increase in set-asides for employee pay has raised the ire of Washington, where lawmakers denounced financial leaders for returning to old habits and vowed to enact measures governing executive compensation.

"It strengthens our commitment to getting legislation passed," Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, said in an interview Wednesday, adding that a committee vote on a bill to increase oversight of Wall Street pay has been scheduled for Tuesday. "The amounts are troubling."

Goldman Sachs caused a stir last week when it disclosed it had set aside a record $6.6 billion for compensation expenses in the most recent quarter, bringing the total for the first six months of the year to $11.4 billion. If that pace continues for the rest of the year, Goldman's employees will earn an average of about $773,000, more than double the figure last year and even exceeding the $700,000 paid in 2007.

The recent set-asides came as Goldman announced it earned a record $3.4 billion for the second quarter, positioning itself, along with J.P. Morgan Chase, as one of the strongest banks to emerge from the crisis.

But some analysts and investors had especially sharp words for Wall Street rival Morgan Stanley, which reported Wednesday that it had set aside $6 billion so far this year for compensation expenses even as it recorded its third straight quarterly loss. In reporting its second-quarter results, Morgan Stanley said it lost $1.26 billion, after accounting for one-time charges including an $850 million expense related to paying the government back after its bailout. Still, the company set aside $3.9 billion in compensation expenses, representing 72 percent of its revenue for the quarter.

Rest of the story is here.

Labels: Golden Parachutes, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Wall Stree bonuses

 

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7/23/2009 11:34:00 AM 0 comments

 

AIG Bonuses Were $454 Million

by Dollars and Sense

Turns out the total bonuses paid to AIG were $454 million last year, or 4 times higher than previously reported. How do we know this? Because Congressman Elija Cummings asked them a direct question. See, nobody asked them this precise question before, so they didn't think anyone really wanted to know.

From Politico:

The 2008 AIG bonus pool just keeps getting larger and larger.

In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.

And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.

AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments. At that time, AIG spokesman Nick Ashooh said the firm paid about $120 million in 2008 bonuses to a pool of more than 6,000 employees.

The figure Ashooh offered was, in turn, substantially higher than company CEO Edward Liddy claimed days earlier in testimony before a House Financial Services Subcommittee. Asked how much AIG had paid in 2008 bonuses, Liddy responded: "I think it might have been in the range of $9 million."

"I was shocked to see that the number has nearly quadrupled this time," said Cummings. "I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start."

In other news, AIG lost another $5 billion in the first three months of the year.

I suppose that's better than losing $10 billion. Another round of bonuses for everyone!

--d.f.

Labels: AIG, Daniel Fireside, Elija Cummings, Wall Stree bonuses

 

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5/07/2009 02:44:00 PM 0 comments

 

CEOs Not Worried About Pay Caps

by Dollars and Sense

As they say, it's good to be a Bankster.

From the WSJ

President Barack Obama's crackdown on Wall Street pay contains loopholes, and may have limited impact in restraining compensation, according to some executive-pay consultants and management attorneys.

Some compensation professionals already are pointing out potential holes in the rules, including tactics such as changing executives' titles or rearranging pay packages. Just as past attempts by the government to restrict executive pay largely backfired, these people warn, the new curbs also may have unintended consequences.

The plan, announced Wednesday, includes a $500,000 cap on annual compensation for senior executives of companies that receive future "exceptional" government aid. Additional compensation would have to be paid in restricted stock or similar long-term incentive arrangements, which the executives could cash in only after the government is repaid, with interest.

Other recipients of future federal bailout money would have to place tougher limits on severance packages and disclose luxurious perks, such as the use of company jets. Annual compensation above $500,000 at these companies would be subject to a nonbinding shareholder vote.

"The mix of transparency and accountability is powerful and strikes the right balance to allow banks to continue operating effectively while operating under common-sense guidelines that rein in excessive compensation," a Treasury Department official said Thursday.

Many applauded the moves as a useful step to curb Wall Street compensation practices that may have led to excessive risk-taking. But some critics identified weaknesses, suggesting the restrictions be retroactively applied to companies that already have received federal bailout cash. They noted that the most stringent restrictions likely would affect only a few firms; others could avoid some of the curbs by putting extra pay to a shareholder vote.

Some said the plan doesn't limit total compensation, because it allows companies to boost awards of restricted stock.

"I am fearful that companies will look at this as an opportunity to grant more restricted shares and stock options to executives who already have an abundant amount of equity," said Jesse Brill, a securities and compensation lawyer who is chairman of CompensationStandards.com, an advisory Web site. He would prefer barring executives from cashing in stock until age 65 or two years past retirement to encourage long-term decision making.

Michael Kesner, head of compensation consulting at Deloitte Consulting LLP, worries the plan allows executives to claim restricted-stock awards once the company pays back the government, and doesn't require companies to tie those awards to operating results or share-price gains, as many companies now do.

"They're actually saying we don't care about performance," Mr. Kesner said.

Others said the preliminary restrictions released by the Treasury Department are overly vague. For example, the $500,000 annual pay limit applies only to "senior executives." James F. Reda, a New York compensation consultant, said companies could give certain executives lower titles or assign them to head subsidiaries.

"Now you're going to have executives ask not to be called a senior executive," said Steven Hall, a New York pay consultant.

Full story here.

Labels: executive pay, Wall Stree bonuses

 

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2/24/2009 04:57:00 PM 0 comments

 

Accountability for the Crisis

by Dollars and Sense

This posting is by Arjun Jayadev, who teaches economics at UMass Boston and is a member of the D&S collective.

The financial meltdown arising from the sub-prime mortgage crisis and the weakening dollar has affected everyone negatively and the outlook for all is grim. Or so at least the conventional story goes. 'Everyone' does not include those at the center of the crisis and who were controlling the levers of a financial system which permitted the extreme levels of risk that characterized this period. And no, one doesn’t mean the policy makers at the Federal Reserve who have rightly been castigated for allowing the real estate bubble to build by keeping interest rates too low for too long. A few observers (e.g. here and here), have noted the fact that executives in the largest financial concerns on Wall Street continued to be rewarded handsomely for their actions in a year where they actively abetted the worst financial crisis in the last decade.

Some sorry accounting then, starting with Wall Street:

—Bonuses in the securities industry amounted to 33.2 billion dollars—about
0.7 billion off its record year (2006).

—The total compensation and benefits of the biggest firms(Citigroup Inc., Merrill Lynch & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc., Bear Stearns Cos., Morgan Stanley and Lehman Brothers Holdings Inc.) grew by 10% since 2006, although revenue and profits fell across all the firms as did their stock prices. Companies actually increased the proportion of revenues which went to employee compensation, ostensibly in order to keep ‘high performing employees’

—To be sure, bonuses fell for those most directly involved for the mortgage market, but for those top executives who lost their jobs, parting was simply sweet. Stanley O’ Neal, the ex-CEO of Merrill was punished with a parting package of $161 million. Not bad for a bad years work. The LA times reports that Countrywide Financial Corp. founder Angelo Mozilo, could reap $115 million in severance-related pay if his organization is taken over.

Meanwhile, on Main Street:

—Households will lose $164 billion in equity due to foreclosures;


—About 3 million homes will be foreclosed over the next three years leading to losses of about $350 billion;


—With falling home values, neighbours will experience losses in equity of about $200 billion;


Its enough to make you think that the system is unfair.

Labels: Countrywide, foreclosures, housing bubble, severance pay, subprime crisis, The Fed, Wall Stree bonuses

 

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1/30/2008 11:23:00 AM 0 comments