We still find it hard to figure out how Wall Street will continue with the practice of mega-bonuses in the post-bailout world. They will, of course, but given the outrage that bonuses provoke in normal times, this should be 10x worse. But regardless of what the banks plan to do, they already owe their executives billions. In a nice bit of financial sleuthing, The Journal pegs the number around $40 billion:
Financial giants getting injections of federal cash owed their executives more than $40 billion for past years’ pay and pensions as of the end of 2007, a Wall Street Journal analysis shows.
The government is seeking to rein in executive pay at banks getting federal money, and a leading congressman and a state official have demanded that some of them make clear how much they intend to pay in bonuses this year.
But overlooked in these efforts is the total size of debts that financial firms receiving taxpayer assistance previously incurred to their executives, which at some firms exceed what they owe in pensions to their entire work forces.
The sums are mostly for special executive pensions and deferred compensation, including bonuses, for prior years. Because the liabilities include stock, they are subject to market fluctuation. Given the stock-market decline of this year, some may have fallen substantially.
How’d they figure out that number:
The Journal was able to approximate companies’ IOUs, in some cases, by looking at an amount they report as deferred tax assets for “deferred compensation” or “employee benefits and compensation.” This figure shows how much a company expects to reap in tax benefits when it ultimately pays the executives what it owes them.
J.P. Morgan, for instance, reported a $3.4 billion deferred tax asset for employee benefits in 2007. Assuming a 40% combined federal and state tax rate — and backing out obligations for retiree health and other items — implies the bank owed about $8.2 billion to its own executives. A person familiar with the matter confirmed the estimate.
Applying the same technique to Citigroup Inc. yields roughly a $5 billion IOU, primarily for restricted stock of executives and eligible employees. Someone familiar with the matter confirmed the estimate.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.