A Wall Street guessing game has grown up around the mystery of why Bank of America is fighting so hard against revealing the names of the recepients of the billions in bonuses Merrill Lynch gave out shortly before the merger on December 31st. Since the bonuses were made before the merger, approved by an executive who has been ousted and a board that is gone, what’s in it for Bank of America?
Bank of America claims it is about protecting employee privacy and preventing other firms from using the information to poach their talent. The first part makes sense: the big bonus winners will surely come in for public scrutiny and even ridicule if the names are made public. There may even be security issues involved, as knowledge that these guys have huge sums sitting in bank accounts may well attract some bad characters.
The seond part–preventing other firms from poaching–is very likely nonsense. Recruiters tell us that they can accurately guess compensation simply by knowing the seniority, field and firm of a trader, banker or broker. Bonus numbers are really open secrets, not deeply mysterious trade secrets.
Probably the most popular theory is that there may be several real stinkers in the bonus bunch–people who lost money for the firm but were paid anyway. This would undermine the “we need to pay talent” rationale for the bonuses and could embarrass Bank of America. Donny Deutch mentioned the idea on CNBC today. Charlie Gasparino was sceptical, saying he doubted former CEO John Thain would have authorised bonuses for money losers.
We hate to say it, but we’re siding with Donny on this one. We know that during this crisis that some senior traders have received sizable bonuses despite losing money, having successfully convinced management that they mitigated losses for the firm on pre-existing positions. So, even if the head of trading Underwater Mortgage Backed Securities lost $1 billion, he might argue that the firm would have lost $2 billion if he hadn’t done such a great job. So he deserves a $5 million bonus.