Oct. 30 (Bloomberg) -- Wall Street's chief executives will hunker down and pay bonuses this year in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry, industry veterans say.
Odds that Wall Street will forgo the payouts are ``slim to none,'' said John Gutfreund, 79, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc. ``They're going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.''
Year-end payments at the nine banks that received $125 billion from the U.S. Treasury are under investigation by U.S. Representative Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on the companies' compensation plans. Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year.
The payouts typically account for about two-thirds of compensation at the biggest Wall Street firms. The bonuses are accrued throughout the year in line with revenue.
``Financial institutions that have accepted federal assistance should be required to face consequences from their earlier bad decisions and cancel those bonuses,'' Senator Olympia Snowe, a Maine Republican, said in a statement on Oct. 28.
Poor Performers
Few of the nine companies receiving money from the U.S. Treasury are performing well this year. Only Wells Fargo & Co. has a higher share price, up 6 percent this year, with the rest showing declines ranging from 18 percent at JPMorgan Chase & Co. to 72 percent at Morgan Stanley. State Street Corp. is the only firm to report increased profits. Merrill Lynch has reported five straight quarterly losses.
``The public pressure might mitigate against bonuses at the levels we've seen recently, and that's in sync with the economic issues,'' said Fred Joseph, 71, co-head of Morgan Joseph & Co. in New York and the former CEO of Drexel Burnham Lambert Inc. ``There will be bonuses this year, but I think they may be reduced by a larger percentage.''
For some bankers, a smaller payout would come as a surprise. More than one-third of Wall Street employees surveyed by a recruitment Web site between Oct. 13 and Oct. 21 said they expect a bigger bonus this year. Two-thirds of the 1,300 people surveyed said they still expect some year-end award, according to eFinancialCareers.com, owned by New York-based Dice Holdings Inc.
`Bonus Season'
Waxman, a California Democrat and chairman of the House Committee on Oversight and Government Reform, sent letters on Oct. 28 to the nine banks that are receiving money in the U.S. Treasury's capital purchase program requesting details of their compensation plans.
Cuomo sent letters yesterday to the nine companies requesting detailed accounting of expected payments to top executives in the ``upcoming bonus season,'' including information on the expected bonus pool for this year.
House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, both Democrats, urged Treasury Secretary Henry Paulson to put restrictions on severance pay for executives that participate in the bailout.
The nine companies receiving the initial $125 billion from the Troubled Asset Relief Program, or TARP, are Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup Inc., JPMorgan, Wells Fargo, Bank of America Corp., Bank of New York Mellon Corp. and State Street.
Outrage
``Wall Street bank executives are set to walk away with billions of bonuses at the end of this year,'' Barack Obama, the Democratic presidential candidate, said in a campaign speech on Oct. 28. ``We call that an outrage.''
Citigroup, in an e-mailed statement, said it will cooperate with ``federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices.''
The New York-based bank said it will also adhere to constraints on executive pay imposed under TARP. Spokespeople for the other firms targeted by Waxman and Cuomo either declined to comment yesterday or said they will cooperate with the inquiries.
John McCain, Obama's Republican opponent, told supporters in Miami yesterday that ``I'm going to make sure we take care of the working people who were devastated by the excesses, greed and corruption of Wall Street and Washington.''
Joseph, the former Drexel CEO, said companies that don't pay bonuses risk losing employees who are unwilling to settle for salaries. Salaries in the industry range from about $80,000 to $600,000 a year.
`Serious Exodus'
``A lot of guys wouldn't want to work this hard just for salaries,'' he said. ``You'd have a serious exodus from the business by a lot of really talented people -- they'd become CFOs of companies, go to firms that didn't participate in the TARP program, go to hedge funds, or start hedge funds.''
Hedge funds, which have lured top traders from securities firms in the past, may cut as many as 10,000 jobs this year as the industry suffers the steepest losses in more than two decades, according to Options Group, a financial services recruitment and consulting firm in New York. More than 149,000 finance jobs have been eliminated worldwide since the middle of last year, according to data compiled by Bloomberg.
Gutfreund, the former Salomon CEO, said Wall Street executives are likely to find ways to pay bonuses and manage the political uproar.
``I'm sure there are creative ways,'' he said. ``There are all kinds of devices to cover yourself in terms of paying people.''
To contact the reporter on this story: Christine Harper in New York at [email protected].
Last Updated: October 30, 2008 09:59 EDT
Odds that Wall Street will forgo the payouts are ``slim to none,'' said John Gutfreund, 79, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc. ``They're going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.''
Year-end payments at the nine banks that received $125 billion from the U.S. Treasury are under investigation by U.S. Representative Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on the companies' compensation plans. Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year.
The payouts typically account for about two-thirds of compensation at the biggest Wall Street firms. The bonuses are accrued throughout the year in line with revenue.
``Financial institutions that have accepted federal assistance should be required to face consequences from their earlier bad decisions and cancel those bonuses,'' Senator Olympia Snowe, a Maine Republican, said in a statement on Oct. 28.
Poor Performers
Few of the nine companies receiving money from the U.S. Treasury are performing well this year. Only Wells Fargo & Co. has a higher share price, up 6 percent this year, with the rest showing declines ranging from 18 percent at JPMorgan Chase & Co. to 72 percent at Morgan Stanley. State Street Corp. is the only firm to report increased profits. Merrill Lynch has reported five straight quarterly losses.
``The public pressure might mitigate against bonuses at the levels we've seen recently, and that's in sync with the economic issues,'' said Fred Joseph, 71, co-head of Morgan Joseph & Co. in New York and the former CEO of Drexel Burnham Lambert Inc. ``There will be bonuses this year, but I think they may be reduced by a larger percentage.''
For some bankers, a smaller payout would come as a surprise. More than one-third of Wall Street employees surveyed by a recruitment Web site between Oct. 13 and Oct. 21 said they expect a bigger bonus this year. Two-thirds of the 1,300 people surveyed said they still expect some year-end award, according to eFinancialCareers.com, owned by New York-based Dice Holdings Inc.
`Bonus Season'
Waxman, a California Democrat and chairman of the House Committee on Oversight and Government Reform, sent letters on Oct. 28 to the nine banks that are receiving money in the U.S. Treasury's capital purchase program requesting details of their compensation plans.
Cuomo sent letters yesterday to the nine companies requesting detailed accounting of expected payments to top executives in the ``upcoming bonus season,'' including information on the expected bonus pool for this year.
House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, both Democrats, urged Treasury Secretary Henry Paulson to put restrictions on severance pay for executives that participate in the bailout.
The nine companies receiving the initial $125 billion from the Troubled Asset Relief Program, or TARP, are Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup Inc., JPMorgan, Wells Fargo, Bank of America Corp., Bank of New York Mellon Corp. and State Street.
Outrage
``Wall Street bank executives are set to walk away with billions of bonuses at the end of this year,'' Barack Obama, the Democratic presidential candidate, said in a campaign speech on Oct. 28. ``We call that an outrage.''
Citigroup, in an e-mailed statement, said it will cooperate with ``federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices.''
The New York-based bank said it will also adhere to constraints on executive pay imposed under TARP. Spokespeople for the other firms targeted by Waxman and Cuomo either declined to comment yesterday or said they will cooperate with the inquiries.
John McCain, Obama's Republican opponent, told supporters in Miami yesterday that ``I'm going to make sure we take care of the working people who were devastated by the excesses, greed and corruption of Wall Street and Washington.''
Joseph, the former Drexel CEO, said companies that don't pay bonuses risk losing employees who are unwilling to settle for salaries. Salaries in the industry range from about $80,000 to $600,000 a year.
`Serious Exodus'
``A lot of guys wouldn't want to work this hard just for salaries,'' he said. ``You'd have a serious exodus from the business by a lot of really talented people -- they'd become CFOs of companies, go to firms that didn't participate in the TARP program, go to hedge funds, or start hedge funds.''
Hedge funds, which have lured top traders from securities firms in the past, may cut as many as 10,000 jobs this year as the industry suffers the steepest losses in more than two decades, according to Options Group, a financial services recruitment and consulting firm in New York. More than 149,000 finance jobs have been eliminated worldwide since the middle of last year, according to data compiled by Bloomberg.
Gutfreund, the former Salomon CEO, said Wall Street executives are likely to find ways to pay bonuses and manage the political uproar.
``I'm sure there are creative ways,'' he said. ``There are all kinds of devices to cover yourself in terms of paying people.''
To contact the reporter on this story: Christine Harper in New York at [email protected].
Last Updated: October 30, 2008 09:59 EDT
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