The Housing Crisis Has Arrived

Miss Muffett : I guess nobody has money to buy right?

Broken Securities Industry Still Has $20 Billion to Pay Bonuses

By Christine Harper and Serena Saitto

Oct. 27 (Bloomberg) -- Five straight quarters of losses and a 70 percent slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.

Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.

The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.

``Critical producers and critical managers will be retained with the same bonus they had last year,'' said Robert Sloan, head of U.S. financial-services recruiting at Egon Zehnder International, a New York-based executive-search firm. ``The others will see sharp cuts.''

Goldman, the biggest and most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 32 percent from $339,400 a year ago. Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.

Merrill's Compensation

The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

The bonus figures are based on estimates that about 60 percent of the compensation and benefits expenses reported by the companies will be paid in year-end bonuses, as occurred in past years. Average bonuses aren't an indication of how much any employee will receive, since payments range widely from assistants to top traders. Bonuses aren't paid until the end of the fiscal year, so firms could choose to reallocate the funds.

``We are in the process of determining appropriate levels of year-end compensation, and no decisions have been made,'' said Mark Lake, a spokesman at Morgan Stanley. Ed Canaday, a spokesman for Goldman in New York, declined to comment.

Merrill spokeswoman Jessica Oppenheim said the firm's accrued bonuses aren't down as much as those at Goldman and Morgan Stanley because the firm reduced expenses last year, when it also had a loss. Compensation costs are down 18 percent this year, compared with the first nine months of 2006, Merrill's last profitable year.

`Moratorium on Bonuses'

A worldwide economic slowdown, caused in part by the financial industry's losses, and a U.S. Treasury plan to spend $250 billion of taxpayer money buying stakes in banks, have made pay a political issue this year.

``There should be a moratorium on bonuses,'' Barney Frank, chairman of the House Financial Services Committee, told reporters last week. ``If nobody gave them, there wouldn't be a competitive aspect.''

In Zurich, protesters blocked UBS AG's private-banking branch on Paradeplatz last week to seek curbs on executive pay after Switzerland's largest bank was forced to ask for government aid.

$145 Billion

``I'm just flabbergasted that the financial community has failed to show any sense of leadership on this issue and doesn't seem to understand how angry people are at them,'' said Nell Minow, editor of Corporate Library, a Portland, Maine-based corporate-governance research firm. ``They are just a bonus away from having the villagers come after them with torches.''

New York-based Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports. That's more than the annual gross domestic product of the Philippines. Last year the firms paid out a record $39 billion.

At the end of this year, companies may decide against paying the money accrued for bonuses and instead use part of it to cover severance costs, said Rose Marie Orens, a New York-based partner at Mercer, the human resources consulting unit of Marsh & McLennan Cos., who specializes in executive compensation for financial- service companies. Goldman and Morgan Stanley end their fiscal year in November, and Merrill's ends in December.

Lehman Bankruptcy

``Whether what you see is what they're going to pay, you can't tell yet,'' she said. ``It's highly unlikely they'll add to those numbers and more likely they'll bring them down.''

Lehman filed for bankruptcy on Sept. 15. Merrill Lynch and Bear Stearns were rescued in emergency sales to Charlotte, North Carolina-based Bank of America and JPMorgan Chase & Co. in New York. Goldman and Morgan Stanley are each receiving $10 billion of capital from the government.

Bank of America is offering Merrill's U.S. brokers bonuses of as much as 100 percent of the revenue they generate to keep them after the deal is complete, people briefed on the plan said last week. Scott Silvestri, a spokesman for Bank of America, declined to comment.

Employees at Lehman Brothers in Europe have been promised by their new owner, Nomura Holdings Inc., that they will receive the same bonus as last year, according to two people familiar with the situation. A Nomura spokesman declined to comment.

Earnings Slump

Share prices and profits have dropped more than bonuses so far. Goldman's profit has fallen 47 percent this year, and the stock is down 53 percent. Morgan Stanley's earnings have tumbled 41 percent, and the shares have shed 69 percent of their value.

``Performances have certainly not been what investors would expect,'' said Daniel Moynihan, a principal at Compensation

Posted by: sebb at October 27, 2008 1:24 PM

Miss Muffett : Let me know when you call the bottom this way I can add up how much you lost by not buying.

Posted by: sebb at October 27, 2008 1:52 PM