Record $39 Billion in Wall Street bonuses

Discussion in 'Wall St. News' started by Eliot Hosewater, Jan 25, 2008.

  1. Do you think they earned it?

    Jan. 17 (Bloomberg) -- Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of the companies suffered the worst quarterly losses in their history and shareholders lost more than $80 billion.

    Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. together awarded $65.6 billion in compensation and benefits last year to their 186,000 employees. That means year-end bonuses, at 60 percent of the total, exceeded the $36 billion distributed in 2006 when the industry reported all-time high profits.

    The New York-based firms, which shed 25 percent of their equity value during 2007, have said they're eliminating at least 6,200 jobs amid mounting losses from the collapse of the subprime mortgage market. The payouts come as the U.S. economy slows, with unemployment rising, retail sales declining and new home foreclosures surging to a record.

    ``To many people, it will be shocking and questionable,'' said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. ``People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people.''

    The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, and the average bonus of $219,198 is more than four times higher than the median U.S. household income in 2006, according to data compiled by the U.S. Census Bureau.

    Falling Stocks

    Shareholders in the securities industry endured their worst year since 2002, as Merrill and Bear Stearns slumped more than 40 percent in New York trading and the chief executive officers at both firms gave up their jobs. Morgan Stanley fell 21 percent and Lehman dropped 16 percent. Only Goldman rose, gaining 7.9 percent.

    ``Wall Street firms have always been run, and likely always will be run, for the upper-level management, not for the shareholders,'' said James Ellman, who manages about $200 million, including stock in Morgan Stanley and Merrill, at San Francisco-based SeaCliff Capital.

    Merrill, the largest U.S. brokerage, posted a record fourth- quarter loss of $9.83 billion today, bringing the net loss for the five firms to $10.2 billion and reducing the combined net income for the full year to $11.5 billion, the lowest since 2002.

    Wiped Out

    Goldman earned $11.6 billion last year, more than the $11.2 billion combined profit reported by Morgan Stanley, Lehman, Bear Stearns and New York-based Citigroup Inc., the biggest U.S. bank. Merrill lost more in the past two quarters than it earned in the previous six. Its full-year loss of $7.8 billion was greater than the firm's 2006 profit.

    Merrill paid $15.9 billion of compensation and benefits for 2007, exceeding the company's $11.3 billion of revenue. While combined revenue for the five firms dropped 13 percent to $110 billion, compensation and benefits grew 8.7 percent. The increase in bonus payments was first reported in November by Bloomberg News, which estimated the five firms would pay out $38 billion.

    Even though all of the firms are based in New York, bonuses payments are increasingly being paid overseas where growth is faster. Goldman and Lehman Brothers both made more than half of their 2007 revenue outside the U.S.

    Average bonuses paid to securities industry employees in New York dropped an estimated 4.7 percent in 2007 from a year earlier, State Comptroller Thomas P. DiNapoli said in an e-mailed statement today. His office estimates that the total bonus pool paid by the industry to New York City employees totaled $33.2 billion, down 2 percent from a record $33.9 billion in 2006.

    High Point

    Bonuses for 2007 probably will mark a high point as revenue declines stretch into this year, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York.

    ``The gilded age just ended,'' he said. ``Ferrari dealers are going to be selling Tata cars. I think this is going to be the worst year we've had in a very long time.''

    Management teams at Morgan Stanley, Merrill and Bear Stearns, where revenue fell last year, rewarded employees who made money in the first half of the year and who work in the fastest-growing businesses by lifting the percentage of revenue they pay in salaries, bonuses and benefits.

    ``A great majority of Merrill Lynch's key businesses delivered record results in 2007,'' said CEO John Thain, who replaced the ousted Stan O'Neal last month, in today's statement. ``The firm is intensely focused on continuing this momentum and delivering growth and increased profitability.''

    Bonuses Lost

    At Morgan Stanley and Bear Stearns, the chief executives sacrificed their own bonuses because their firms made bad bets on subprime mortgage-backed securities.

    The CEOs fared better at Goldman and Lehman, which reported record 2007 earnings. Goldman's Lloyd Blankfein was awarded a $67.9 million bonus, the biggest ever for a top Wall Street executive, and Lehman's Richard Fuld was granted $35 million in stock for 2007.

    Lehman, which eliminated 2,450 jobs last year, said today it's cutting 1,300 positions at a subsidiary that makes home loans. Bear Stearns cut 1,550 jobs last year, Merrill cut 1,000 and Morgan Stanley got rid of 900 positions.

    Further job cuts are likely across the industry this year as revenue declines, SeaCliff's Ellman said. In such an environment, firms could have paid employees smaller bonuses without fear of losing their best people to competitors, Ellman said.

    `Call the Bluff'

    Wall Street ``could have paid significantly smaller bonuses this year,'' he said. ``It is surprising that none of the firms were really willing to call the bluff of their employees, especially when we know there's going to be significant layoffs.''

    By paying more than the firm made in revenue, Merrill signaled to employees, shareholders and the competition that they'll compete aggressively in 2008, said Branthover of Boyden Global.

    ``They did lower compensation but they didn't lower it so much that they're going to lose everybody who's talented,'' Branthover said. ``They're being somewhat conservative but not pessimistic.''
  2. RhinoGG

    RhinoGG Guest

    "the world needs ditch diggers too"

    Judge Smales
  3. :D
  4. Aok


    The steamboats let out a last gasp on their way to Switzerland.

    This merely signifies an end to The Fast Times at Ridgemont High environment we've been in so far in this refinance bubble. Thank you Greenspasm.

    Maybe when these jokers are "reassigned" or "retire to spend more time with their families" we can get back to downturn/reconstituting the economic cycle.

    Credit cards are next.

    Then the Chinese and the renminbi.

    All aboard!
  5. *scans horizon for the customers' yachts*
  6. mokwit


    We have full blown moral hazard banking.