Bloomberg has a telling interview with some of the biggest names of ’80s greed on how Wall Street will cope without bonues. Or, rather won’t cope, because they’ll still have bonuses. Below, most of the article, with our comments. If anyone knows from greed it’s these guys.
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.”
Back in the day Gutfreund was such a model of Eighties greed that he and his socialite wife were supposedly an inspiration for the superrich narcissicistic couple in “Bonfire of the Vanities.”
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.
And this year the revenue ain’t good. (Unless you count bailout money as revenue.)
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 per cent this year, with the rest showing declines ranging from 18 per cent at JPMorgan Chase & Co. to 72 per cent at Morgan Stanley. State Street Corp. is the only firm to report increased profits. Merrill Lynch has reported five straight quarterly losses.
And, here comes the former CEO of Drexel, the poster child firm for the decade’s excess:
“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.
(Does a guillotine count as an award?)
…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.”
How about some taxpayers have other ideas about some best practices they’d like to implement.
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.
…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.
…”A lot of guys wouldn’t want to work this hard just for salaries,” he said.
Um, let’s consider the great job they did when they were working hard.
….”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.”
Good luck with that.
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.”
If anyone has any ideas of what he means by creative please comment away.
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