A few days ago brokers at Merrill Lynch were saying a quiet thanks that public attention had turned to the bonuses at AIG, taking focus away from the bonuses that had been paid at their firm last December.
“Their pain is our gain,” one Merrill vet told me.
In the wake of the hasty vote in favour of the 90% tax on bonuses at firms that took more than $5 billion, however, the quiet joy has turned to vocal fear and anger. Bankers who booked deal fees in the millions of dollars and retail brokers who have brought in millions in fees, now find themselves fearing that their bonus could be effectively clawed back.
After years of laboring under a system of merit pay—albeit an often abused system—they find themselves tarred with the losses booked by other units at their bank. Indeed, Merrill Lynch never actually took TARP money prior to the day when the merger with Bank of America was announced. (The TARP wasn’t approved until after the deal was made.) Instead, it has been backed into the TARP by being acquired by Bank of America.
There’s an irony to this fear. The clawback provision in the bill passed by the House yesterday is very limited in scope. Although there are fears of a retrospective tax bill, the provision only apply to bonuses paid this year. Merrill Lynch bonuses were paid well before December 31, 2008. They’re safe.
But brokers also fear what this will do for their bonuses going forward, and some are considering heading for the exits. Many of the top brokers are confident their clients would move with them to a new firm, perhaps a foreign bank that didn’t receive TARP money or even a brand new brokerage. With loyalty to Merrill already badly damaged by the merger with Bank of America, many brokers will certainly leave if the bill becomes law.
There’s also anger at Democrats. Brokers who supported Barack Obama, some voting for a Democratic presidential candidate for the first time, feel betrayed by bill.
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