George Fisher, a senior adviser at Kohlberg Kravis & Roberts & Co., spoke about managing the firm’s portfolio companies at Columbia University’s Business School’s Private Equity and Venture Capital conference Friday afternoon.

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Also on Dealscape AIG: If you can’t sell, go public? Crisis Dashboard: LIBOR, VIX, TED Spread, Dow KKR’s George Fisher on managing portfolio companie Pilot Group’s Bob Pittman on media and the Interne In ethanol bankruptcies, disputes with contractors Genentech: Tied to the tracks? Maybe politicians should ban Wall St. campaign don Obama may be attempting a Commerce, Senate twofer

Fisher began by admitting that 90% of the audience likely knew more about the workings of the private equity industry than himself, before explaining his role as an adviser to the buyout giant on deals. His role is primarily in aiding due diligence and in helping to improve portfolio companies.

Fisher mentioned the public perception problems that buyout firms continue to face.

“We have a massive PR problem as an industry,” he said. “I know that its being addressed, but in the past the bad stories were not rebutted effectively. We took the ‘private’ part too literally.”

Nevertheless, Fisher had heavy praise for the ability of private equity firms to add value to corporations.

“Especially in these times, KKR is focused on building value within our portfolio companies,” Fisher said. “Getting from here to there is easier as a private company; you don’t have to deal with the markets, the analysts, the share price. The decision cycle time and the quality of decision making are both enhanced in private equity-owned companies.”

Fisher continued by saying that the crisis will lengthen the exit process.”On average we hold a company for seven years. The current credit crisis will likely add a year to that, but that’s a lot of time to have to transform a company, and it’s easier to transform a company out of the limelight,” he said.

“The virtue of private equity is that we really are working with a long-term view,” Fisher continued. “Henry [Kravis] and George [Roberts] have been through recessions before, and their perspective is that we’ll get through it. It will just take a lot of hard work. We know what we have to do, we just have to do it.” - George White

Published January 30, 2009 at 4:29 PM

 

http://www.thedeal.com/dealscape/2009/01/kkrs_george_fisher_on_managing.php

• JANUARY 31, 2009

Signs of the Future of Banking and Finance Emerge

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  Jonathan Glater’s article in the New York Times this morning is just further evidence that the pyramid scheme of major law firms is starting to show its age. Yesterday, the New York Lawyer (subscription) took more direct aim at the weak foundation of the Biglaw business model:

  Over the last couple decades, high leverage–the practice of having each equity partner supported by three or more associates or income partners–was accepted as a basic tenet of profitability. A firm billed out these junior lawyers at significantly more than it paid them, often getting billings that were triple the lawyer’s salary. It seemed like a sure-fire way to make money. But high turnover and rocketing salaries ate into profit margins. Now, the whole pyramid model is looking fragile.

  And it shouldn’t come as a shock that the pressure weighing down on the business model is coming from partners desperate to hang on to every penny of profit. It is clients that ultimately control the purse strings.

  More detail after the jump.
  Clients are putting incredible pressure on firms to control costs:

  Susan Hackett, general counsel of the Association of Corporate Counsel, is another. “I don’t have a problem with the $1,000-an-hour lawyer, but the $350-an-hour junior associate isn’t worth it,” she says.

  But whenever the economy slows, there are calls to change the nature of Biglaw billing. Will this current crisis produce lasting changes? According to the New York Law Journal, Milbank doesn’t think so:

  The model still has its believers. Leverage is “very good in very good economic times and not good in bad economies,” says Mel Immergut, chairman of Milbank, Tweed, Hadley & McCloy. When the economy comes back, he expects firms such as Milbank that do “high-end, complex work” will benefit.

  I believe we can distill that statement to the very simple business idea that firms can fire associates when demand is low, and hire more associates when demand picks up. Nobody is really worried about the “supply” of willing attorneys.

  Nor should they be. There simply aren’t a lot of six figure jobs available to people right out of school.

  You don’t need slave labor to build a pyramid, you just need a labor force with no better option.

  Work Like an Egyptian [New York Law Journal] (subscription)
  Billable Hours Giving Ground at Law Firms [New York Times]

  http://abovethelaw.com/2009/01/the_leaning_tower_of_biglaw.php

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  Work Like an Egyptian

  New York Lawyer
  January 29, 2009
  Reprints & Permissions

  By Susan Beck
  The American Lawyer

  Subscribe to The American Lawyer

  In May, The American Lawyer published a small chart showing the five most “leveraged” firms in the Am Law 100, based on the ratio of all lawyers to equity partners. At the time, the list seemed mildly interesting, but not of great importance.

  Today, as we cower amid the debris of a shattered financial world, the list looks eerily prescient. The five firms on the list are Cadwalader, Wickersham & Taft (8.49 lawyers per equity partner), White & Case (6.63), Orrick Herrington & Sutcliffe (6.26), Thelen (6.13), and Bingham McCutchen (5.95). The first three have announced layoffs, and Thelen is dissolving.

  Over the last couple decades, high leverage—the practice of having each equity partner supported by three or more associates or income partners—was accepted as a basic tenet of profitability. A firm billed out these junior lawyers at significantly more than it paid them, often getting billings that were triple the lawyer’s salary. It seemed like a sure-fire way to make money. But high turnover and rocketing salaries ate into profit margins. Now, the whole pyramid model is looking fragile.

  One problem facing highly leveraged firms is that they tend to focus on dwindling practices. Structured finance is the prime example. Firms assigned armies of associates to these deals, which often followed a cookie-cutter format. At one time, investment banks didn’t blanch at paying nearly $300 an hour for a first-year, but that gravy train has left the station and may not come back.

  REDUCING COSTS

  For the work that does remain, like litigation and more mainstream corporate deals, clients will increasingly seek to reduce costs. More work will likely be assigned to contract lawyers, attorneys in India, or a computer.

  Benjamin Heineman Jr., the former general counsel of General Electric Co., now senior counsel at Wilmer Cutler Pickering Hale and Dorr, is one observer who believes that the golden days of leverage are over. “The guts of this debate is productivity. More lawyers per partner doesn’t improve productivity,” he says.

  Susan Hackett, general counsel of the Association of Corporate Counsel, is another. “I don’t have a problem with the $1,000-an-hour lawyer, but the $350-an-hour junior associate isn’t worth it,” she says.

  Sometimes the problem isn’t too many associates but too many nonequity partners, as was the case at Thelen.

  But not all the firms among the top five are suffering: Bingham expects to see revenue grow 6.5 percent in 2008, according to firm chairman Jay Zimmerman.

  The model still has its believers. Leverage is “very good in very good economic times and not good in bad economies,” says Mel Immergut, chairman of Milbank, Tweed, Hadley & McCloy. When the economy comes back, he expects firms such as Milbank that do “high-end, complex work” will benefit.

  THE SOLUTION?

  If leverage is the problem, what’s the solution? Trimming salaried ranks is one option, and layoffs are probably the only way to do that, as attrition rates are near zero.

  Another option is to cut salaries for those doing routine work. McDermott Will & Emery, for example, recently created a separate track of staff lawyers who are paid much less than their regular associates. The program has been a success, and the firm plans to double its size. (It declined to reveal how many staff lawyers it has.) Jeffrey Stone, who heads the firm’s trial department, says these lawyers offer clients better value than contract lawyers because there is less turnover and the firm can control quality. “I think there’s some sizzle to this idea,” he says.

  http://www.nylawyer.com/display.php/file=/news/09/01/012909a

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  top 10 by leverage:

  http://pdfserver.amlaw.com/dc/leverage.pdf

January 30, 2009, 4:14 pm

K&L Gates: The New Godzilla of BigLaw?

Posted by Nathan Koppel

We take a minute now to behold the wonder that is K&L Gates. In these moribund times, K&L is growing like its 1999.

Today, K&L voted in favor of acquiring Bell Boyd & Lloyd, a Chicago firm of about 250 attorneys. Here’s a link to the press release.

The combo, effective March 1, will create a firm of 1,900 lawyers and 31 offices. Yowza. By the time this post is finished, the firm may be north of 2,000 attorneys. And to think it was not that long ago that Kirkpatrick was a quaint little Pittsburgh shop. (The 2007 Am Law 100 rankings listed the firm at 825 lawyers.)

But last year, K&L gobbled up Hughes & Luce, a 150-lawyer Dallas firm, and Kennedy Covington, a 175-attorney firm in Charlotte. There were other smaller acquisitions along the way, of course, including the takeover of 9-lawyer J&J Attorneys-at-law in Taipei.

K&L was mentioned in a WSJ article in October, which discussed how some firms continue to hire aggressively during the slump. Peter Kalis, chairman of the firm, told WSJ that K&L had hired 45 partners laterally during the year.

“We have no debt — no long-term debt, no short-term debt — and therefore have a balance sheet that allows us to grow aggressively into a downturn,” he said

K&L is not alone. Mergers were up across the board last year. Down markets, after all, create buying opportunities. Top firms that may never have considered a combination are now willing to talk in light of the beating that their balance sheets are taking.

 

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January 29, 2009, 12:01 pm

Harvard Finance Expert Stein Joins Obama Team

Harvard University economist Jeremy Stein is leaving to take a job with the Obama administration, working for Larry Summers. The move brings one of the country’s leading finance experts to Washington D.C. — one who’s had some strong opinions about how the government has handled the financial crisis so far.

Stein (Harvard)

Mr. Stein had strong reservations about the Treasury’s original plan for buying banks toxic assets, complaining that it would entail paying over-the-market prices without getting anything in return. And he bristled when the Treasury’s revised plan, which entailed banks giving the government preferred stock, didn’t include a suspension of dividends.

“Simply put, the government should force the banks to suspend all dividend payments,” he told The Wall Street Journal in October. “It makes absolutely no sense for the government to put money into the banks, only to see a significant fraction of it flow out again as dividends to shareholders, and in many cases, bank executives with large equity stakes.”

Earlier this month, Mr. Stein was among the economists the Journal asked for prescriptions on how to get out of the economic crisis.

He advocated aggressive government audits of banks, aimed at separating solvent ones from insolvent ones. Once that was done, insolvent banks would be forced into closure or sale while solvent ones would be pushed to raise more private capital. In addition to dealing with the bad bank problem, putting the plan in place would remove much of the uncertainty in financial markets that the government’s ad hoc approach to banks thus far has helped instill.

In the longer run, Mr. Stein thought that there needed to be a new mechanism for resolving financial distress in financial firms that keeps some of the features of bankruptcy but avoids the problem of runs that can make one firm’s troubles metastasize across the financial system. –Justin Lahart

 

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Steep Slide in U.S. Economy as Unsold Goods Pile Up

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By LOUIS UCHITELLE

Published: January 30, 2009

The economy shrank at an accelerating pace late last year, the government reported on Friday, adding to the urgency of a stimulus package capable of bringing the country back from a recession that has only deepened since then.

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The New York Times

 

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Commerce Department News Release on Gross Domestic Product

The actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter. But that was because consumption collapsed so quickly that goods piled up in inventory, unsold but counted as part of the nation’s output.

“The drop in spending was so fast, so rapid, that production could not be cut fast enough,” said Nigel Gault, chief domestic economist at HIS Global Insight. “That is happening now, and the contraction in the current quarter, as a result, will probably exceed 5 percent.”

The dismal result, and the likelihood of more of the same through the spring, are fueling discussion among policymakers and politicians over the best way to spend the soon-to-be-authorized federal money.

Some caution that President Obama’s proposals attempt to achieve too many objectives — for example, broader health care coverage and energy efficiency — at the expense of focusing tax dollars on the core issue of job creation. By this argument, more should be spent on such things as infrastructure repair, either directly or by channeling money to the states for projects now on hold for lack of sufficient tax revenue.

Others argue that the best bang for the buck would come from a stimulus package devoted mainly to tax cuts rather than public investment. The breakdown is two-thirds spending, one-third tax cuts in the $819 billion bill that the House approved on Wednesday and the Senate will take up next week.

The president himself took a different approach in a press conference on Friday. Seizing on the damaging fourth-quarter figures and the prospect of an even weaker first quarter, he called the contraction “a continuing disaster” for working families and pushed Congress to act quickly to provide relief.

Even with the help of swelling inventories, the 3.8 percent contraction, adjusted for inflation and representing all of the nation’s economic activity, was the largest quarterly drop in the nation’s output since the 1982 recession.

Business investment, commercial construction, home building and exports all fell steeply, doing so for the first time since the recession began 13 months ago. As for consumer spending, in only one other quarter since records were first kept in 1947 have final sales of goods and services produced in America fallen so much.

“Consumer spending is often held up as the engine of growth, and we are now experiencing the second largest contraction on record,” said Ben Herzon, an economist at Macroeconomic Advisers in St. Louis, referring to the 7.6 percent drop in the midst of the 1974-75 recession, and 5.1 percent now.

Christina D. Romer, chairman of the president’s Council of Economic Advisers, said in a statement that “aggressive, well-designed fiscal stimulus is critical to reversing this severe decline.” She did not describe the elements of a well-designed fiscal stimulus, but the vast majority of the nation’s economists agree that one is necessary, and soon.

Virtually none dispute that the usual route to recovery, cheap credit, has failed to work this time — not when lenders are pulling back, despite prodding from the Federal Reserve, and borrowers are focused more on paying down debt and building up savings.

“I’m hoping the fiscal stimulus will be a catalyst to reignite the private sector,” said Stuart Hoffman, chief economist at the PNC Bank Corporation in Pittsburgh. “My hope is that as the fiscal stimulus kicks in, people will begin to spend and invest more, modestly anyway, in the second half of the year.”

Absent a large stimulus package, most economists expect the nation’s output to shrink not only in the first half of the year, but in the second half as well. In April, the recession will become the longest since the 1930s. Until now, the record, 16 months, was shared by the severe recessions of 1974-75 and 1981-82. This one began in December of 2007 as employment peaked and began to fall.

“We are in the thick of it now,” said Robert Barbera, chief economist for ITT Investment Technology Group.

The Federal Reserve ended the mid-’70s and early ’80s recessions by cutting interest rates sharply to encourage borrowing and spending in the private sector. This time, the credit crisis, rising unemployment, plunging home prices and bank failures have disrupted that mechanism, particularly since late summer.

Indeed, until the fourth quarter, the nation’s output had declined only in the third quarter, falling by half a percent at an annual rate. The Fed, in response, to the accelerating decline, cut rates to nearly zero — a tactic that in the past would have raised cries of loose money and rising inflation.

The concern now, however, is deflation, or falling prices, and Friday’s report from the Bureau of Economic Analysis, suggested that the fear has some justification. Personal consumption expenditures, not counting food and energy, rose at an annual rate of only 1.6 percent, the smallest quarterly increase in years. If prices were to actually fall, consumers might respond by putting off purchases until prices are even lower.

“My sense is that business is slashing hugely and across the board,” said Allen Sinai, president and chief global economist of Decision Economics. “Everyone is cutting prices, people, capital spending and all kinds of expenses. It is almost a herd instinct.”

January 29, 2009, 5:36 pm

Bill Gross: Propping Up Banks Isn’t Enough

PIMCO’s Bill Gross makes an important point in his latest commentary, one we’ve made before at the Journal.

One of the big problems that policy makers face in dealing with this financial crisis is that much of it is taking place outside of the traditional banking system, in hedge funds, investment banks, SIVs and the like. One of the problems with the Paulson approach to the crisis, Mr. Gross says, is that it was too focused on pumping capital into banks.

The next step, he says, needs to be to find ways to prop up the values of assets — from municipal bonds to commercial mortgage backed securities to investment grade corporate debt — held outside of the banks. That was the original purpose of last year’s financial bailout. Of course Mr. Gross is a debt investor. He is almost surely talking his book. But he still makes a valid point worth checking out. –Jon Hilsenrath

 

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http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/IO+Feb+2009+Gross+Beep+Beep.htm

nvestment Outlook Bill Gross | February 2009 BEEP BEEP! Download PDF E-Mail Alerts Download Audio Subscribe to Podcast Podcast Instructions Problems Downloading? Send an email The current financial and economic crisis is difficult to appreciate, not only for the drop in elevation, but because of the swiftness of the declines. It’s been a Wile E. Coyote 12 months – straight down like a dead weight. A year ago, global equity prices were nearly twice today’s levels and recession was only a whisper on the lips of the gloomiest of economists. Today, descriptions drawing parallels to the Great Depression make it obvious that a major shift in economic growth and its historic financial model, as well as policy prescriptions for its revival, are underway. Most of the world’s connected economies and its citizens are in shock, conscious but not fully aware of the seismic shifts that will unfold in future years. PIMCO’s thesis for several years has held that the levered global economy long ago morphed from a banking-dominated regime to one that hid behind securitized lending and structures resembling a “shadow banking” system. SIVs, hedge funds, CDOs and increasingly levered mortgage and investment banks fueled asset appreciation in all investment markets, which in turn propelled real economic growth and employment to unsustainable levels. But, with U.S. housing prices as its trigger, the delevering process did a Wile E. Coyote and headed over the cliff in mid-year 2007, dragging down almost all asset prices except government bonds. The real economy followed shortly thereafter, not just in the U.S., but globally, proving that linkages work on the “down” as well as the upside. To PIMCO, the remedy for this deflationary delevering and mini-depression is simple and almost axiomatic: stop the decline in asset prices. If that can be done, the real economy will level out as well. When home prices stop going down, newly created households will be more willing to take a chance on ownership as opposed to renting. If stock prices consolidate, recently burned investors will be more willing to invest, as opposed to stuffing their 401(k) mattresses with Treasury bills. Business investment, jobs, and profits should follow quickly behind. The simplicity of the solution, however, is not easily achieved once deflationary momentum takes hold. Animal spirits, once dampened, are hard to reignite; “fear of fear itself” dominates greed. Under such circumstances, the benevolent hand of government is required and Keynes is reincarnated in an attempt to plug the dike via fiscal spending and imaginative monetary policies that support asset prices. PIMCO has recently been contracted to assist in several publically announced programs which have helped in that effort: the CPFF, which has benefitted commercial paper yields, and the Federal Reserve’s purchase program for agency-backed mortgage loans, which has lowered 30-year mortgage rates to 4.5% and fostered the affordability of new and secondary housing prices. These two programs, in our opinion, have been the major policy successes to date – not because of our involvement – but because they have supported and increased asset prices whose decline has been the major deflationary thrust behind the real economy. Stop asset prices from going down and with a 12-month lag, unemployment will stop going up, and President Obama’s targeted three million new jobs will have a fighting chance of being achieved. But stopping the decline of asset prices can be and has been attempted in numerous, seemingly uncoordinated ways. Recapitalization of the banks has been the major thrust, in the hopes that banks would extend credit which would reinvigorate asset pricing. Those who argue strongly for a recapitalization of the banking system, however, may be missing the distinction between the banking system as we once knew it, and the “shadow banking” system that superseded it. Jim Bianco, who heads up the research tank bearing his own name, brought the difference to mind in a recently produced piece entitled, “When Will The Banks Start Lending?” His conclusion was that banks already were – lending – but it was the “shadow system” (my words) that was holding up the parade. According to his analysis, shown in Chart 1, securitization has for several years exceeded bank loans as a percentage of private credit market debt. In contrast to recent headlines, however, banks have been picking up their lending, but it has been the “shadow banks” that have faltered. That makes sense. While banks may have tightened their lending standards, fresh capital from the TARP has made it possible to make new loans. The shadow banks, however – hedge funds, investment banks, and structured financial conduits – have been forced to delever as government funds have been directed to more visible institutional lenders. Granted, Goldman Sachs and Morgan Stanley have been TARP recipients, but only under the conditions of downsizing and degearing on their way to becoming regular banks, which have cut their holdings of assets significantly in percentage and actual dollar terms. It should not surprise, therefore, that with the exception of specifically directed government programs directed at commercial paper rates and 30-year mortgage yields, past policies have been unsuccessful. Banks have been recapitalized – yes – and banks have cautiously started to lend. But shadow banks are still delevering due to disappearing and unavailable fresh capital and, as they do, they continue to drag asset prices with them. PIMCO’s Ramin Toloui has produced Chart 2 which correlates the contraction in household debt to the decline of the securitization market. He estimates that there is a one trillion dollar hole that needs to be filled by policymakers in this area alone. Stressing the importance of the shadow banks is not the same thing as suggesting that they should be next in line for government largesse and bailouts. Lord knows, the Obama Administration is not going to bail out hedge funds, CDOs, private equity firms (Cerberus?), or Donald Trump. There are levered risk takers that will be, and should be, allowed to fail. But in permitting failure, policymakers must still be cognizant of the need to support asset prices – hopefully by inducing confidence and trust in private investors, as pointed out by Robert Shiller in a recent Wall Street Journal op-ed, but if need be by the financing or purchase of assets themselves. It’s not so much that the stock market needs to go back to 10,000. That would be nice for millions of 401(k)s that have been cut in half over the past 12 months, but it is not likely. Rather, asset prices securitizing commercial real estate and credit card receivables, as well as plain old-fashioned municipal bonds, must stop going down if the real economy has any chance to revive by 2010. Example: CMBS or commercial real estate mortgage-backed securities are now priced to yield over 12% vs. 5% in recent years. As real estate financing comes due and rolls over in the next few years, it is imperative these yields return to mid-single digits if shopping centers, retail malls, and office buildings are to remain viable. How best to bring those yields down is debatable: another CPFF-like structure with self-insurance and contributed fees as its equity backstop? A generous portion of remaining TARP billions providing a reserve cushion for Federal Reserve funding? A good bank, bad (aggregator) bank structure? All three are being debated by policymakers and we should have clarity within a week’s time. But one thing is certain: an economic recovery is dependent upon commercial real estate prices stabilizing and most retail stores staying open for business in the months and years ahead. Similarly, municipal yields are now trading at nearly twice their Treasury counterparts, implying that municipal bonds are trading at 80 cents on the dollar instead of 113 cents like the average Treasury. To enable states and cities to return to normal functioning, those bonds must return to par. Modern day capitalism depends on the successful refinancing and issuance of securities at a price and yield level not significantly divorced from past experience. That is the same thing as saying that current yields must come close to matching the economy’s embedded cost of debt if default is to be avoided. Not only municipalities, but the efficient operation of hospitals, nursing homes and even universities depend on the leveling and returning of municipal bond prices to higher levels. Similar arguments can be made for corporate bonds as well. PIMCO’s advice to policymakers is as follows: you can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. The prior Administration’s focus on the banks has been critical but unidimensional. The shadow banking system with its leverage and financial innovation, powered a near 25-year global economic expansion, but it is the delevering of those hidden quasi-banks that is now threatening its petrification. Policymakers should not focus entirely on one-off bailouts of large real estate developers, municipalities, or even credit card issuers like they have with Citi, BofA, and AIG. Rather, they should recognize that supporting critical asset prices such as municipal bonds, CMBS, and even investment grade corporate bonds is a necessary step towards eventual economic revival. Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist. The original focus of the TARP was on asset prices, but the prior Administration quickly lost its way or perhaps its nerve. Like his Road Runner nemesis, Wile E. Coyote must now extend some infrequently used figurative wings to avoid the deflationary precipice below. Support asset prices. Beep Beep! William H. Gross Managing Director << Archive Past performance is not a guarantee or a reliable indicator of future results. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. U.S. Government securities are backed by the full faith of the government; portfolios that invest in them are not guaranteed and will fluctuate in value.  Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to factors such as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity.  Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor there is no assurance that the guarantor will meet its obligations.   Collateralized Debt Obligations (CDOs) may involve a high degree of risk and are intended for sale to qualified investors only. Investors may lose some or all of the investment and there may be periods where no cash flow distributions are received. CDOs are exposed to risks such as credit, default, liquidity, management, volatility, interest rate, and credit risk. This article contains the current opinions of the author but not necessarily those of the PIMCO Group.  The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.   Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Pacific Investment Management Company LLC.  ©2009, PIMCO.

 

http://blogs.wsj.com/deals/2009/01/30/mean-street-ending-wall-streets-bonus-madness/

 

January 30, 2009, 1:31 pm

Mean Street: Ending Wall Street’s Bonus Madness

Posted by Deal Journal

Thursday, President Obama stuck his head out of the Oval Office window and shouted, “I’m Wall Street’s most important shareholder. I’m mad as hell and not going to take it anymore.”

Are you listening, Wall Street? You should be.

Obama may be the only one who can save you from the bonus-zapping frenzy of Harry Reid and Nancy Pelosi. How about federally mandated caps on bonuses? Or full-scale nationalization?

Unfortunately, there is plenty of public sentiment for them to do just that.

To blow yourself up is one thing. To end up needing hundreds of billions of dollars in taxpayer bailout money is another.

But at least have the good sense to keep a low profile. The unseemly spectacle of million dollar office renovations, $50 million corporate jets–French ones for goodness sakes!–and $18.4 billion in bonuses makes Wall Street look bent on suicide.

Wait till Congress realizes you actually paid out a heck of a lot more than $18.4 billion.

The $18.4 billion figure is the amount of cash bonuses paid to 168,000 New Yorkers. It doesn’t include the gobs of unvested stock and options that senior traders and bankers were granted this year. And it doesn’t include the bonuses of at least an equal number of other folks who work for Wall Street in the rest of the U.S. or globally.

Total compensation including salary and bonus ran to $15 billion at Merrill Lynch alone. At Goldman Sachs, almost $11 billion. Add it up across Wall Street, and total 2008 bonuses may easily run two to three times that $18.4 billion number.

Now, I’m a creature of Wall Street. I am as sympathetic an observer as you will find.

Is a $112,000 average Wall Street bonus excessive? Not to me. In the greater New York area, the tax rate is effectively 50% which leaves you about $56,000. That won’t even cover the average annual rent of $60,000 for a two bedroom apartment in Manhattan.

But consider that the median price of a U.S. home is about $175,000 and you can understand why the rest of America feels differently than me. And why Obama has no choice but to express outrage over your behavior. How can the president get Congress to further subsidize you if you are perceived as ripping off the taxpayer?

In fairness, you are catching on to the public’s anger. The decision by Wall Street CEOs and other top execs to forgo bonuses was the right thing to do. As was the move to ditch the annual Davos boondoggle.

But those are superficial, public-relations gestures, not substantive changes. Real change would be an industrywide effort to restructure your compensation system.

Ironically, it is Wall Street’s usual followers–UBS and Credit Suisse–that are taking the lead on this front. Bonuses at UBS Investment Bank, for instance, are down 80% this year and are to be paid 100% in deferred shares.

Unfortunately, you are likely to resist following suit. Goldman Sachs still is perceived as your leader. And as long as CEO Lloyd Blankfein sees the old Wall Street business model as “viable,” he is unlikely to radically restructure Goldman’s comp system. And if Goldman still sets aside 45% or so of its net revenue as compensation and pays out around half of the bonus in cash, the rest of you will have trouble doing anything different.

Unless President Obama makes you do something different. Which he will, if you push him hard enough. So, here is my advice.

Lloyd Blankfein, John Mack, Jamie Dimon and Ken Lewis should get on the Acela to Washington. They should head immediately to their most important shareholder at the White House. There they can explain what they are going to do to show that Wall Street does indeed “get it” while taxpayers pay for their sins.

Then they should get back on the Acela and hide until the economy recovers. By then, the rest of America may have forgotten just what a sweet deal Obama may give them.

 

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AMEN

Comment by Anonymous - January 30, 2009 at 1:41 pm

I think this is well written. Because, even though I never received a large Wall Street bonus, I understand why they are paid out. I understand the importance of attracting and retaining talent.
But many including myself see that as the same talent that got us here. I think in this case, the UBS model of deferred shares may be worth adopting. But, I do see some challenges with that as well.
However and most important is that in this economy I DON’T CARE to hear about someone’s LARGE BONUS. And, sense TAX PAYER MONEY is being spent, I REALLY DON’T CARE.

Comment by BH - January 30, 2009 at 1:48 pm

That 18.4 billion is the stupidest thing I ever heard of. We are not talking about some super rich guy driving a lamborgini from his $20 million house in Watermill to his $2 million office … we are talking about mostly shlubs standing on the train from NJ and the other suburbs to Manhattan. It is not 10 guys getting a $20 billion bonus it is many many people getting defered compensation as “bonuses”. That is the foolishnes that this is all about. Regular people getting $2000-$10000 on high five figure to low six figure salaries so they can live ordinary suburban lifestyles.

Comment by Chris - January 30, 2009 at 1:49 pm

You can move the toxic assets off the books by packaging the drerk and handing them out to the executives as “bonuses”. First, there is an inherent justice in this and then it causes a reverse Moral Hazard. The Masters of the Universe will think twice in the future if they sense their exotic packages they dream up might well wind up as their compensation. This is very much like having the parachuite riggers once a year take at random one of the parachutes they packed and jump with it.

Comment by Truckbomb - January 30, 2009 at 1:49 pm

Wall St paid what, maybe $14-15 billion in “bonuses” — now Nancy & Harry are paying out something north of $400 billion to their “constituents”… Wall St can never compete with the Feds when it comes to shameful spending!

So much for Obamanomics.

Comment by Anonymous - January 30, 2009 at 2:02 pm

Might not the salary bubble be one of the problems facing the economy? The artificial profits in the financial sector boosted salaries and bonuses, this boosted rents and property values, and this boosted cost of many day to day purchases.

The economy will not get back on track until all these excesses are removed. Hope you feel the pain the reast of us are feeling!

Comment by Jim in Cupertino - January 30, 2009 at 2:04 pm

End of year bonus payments should be tied to profitability and performance-
HELLO!!!

Comment by All Americans - January 30, 2009 at 2:11 pm

The point of rent/housing, property taxes, commuting costs, etc is one that I have been trying to explain to those I grew up with who do not work on-or even near-Wall Street. While many in suburban and rural America don’t understand since their costs are extraordinarily lower, these 80% discounts or more in bonuses-not even to mention the 100s of thousands laid off in the past year-has caused almost everyone to change the way in which they live. When you have wives in Greenwich using coupons at the local supermarket they get the point! Say its unfair, but bankers don’t get pensions, like your buddies in Detroit

Comment by Anonymous - January 30, 2009 at 2:12 pm

Your $112K “average” is misleading people into thinking that bonuses are low; many lower-level staff get paltry bonuses while others take home much larger than the average you cite.

Comment by John L. - January 30, 2009 at 2:12 pm

Bonus is a reward for above and beyond performance, and there is nothing wrong with that. But Wall Street has been not only a disaster and embarrassment to the themselves, but the U.S. as well. No performance should equal no bonus. Rent is high in New York because demand is high and supposedly the residents perform well enough to pay the rent. Obviously it is the worlds biggest illusion/scam. Toto, I don’t think we are in Kansas anymore.

Comment by Dorothy - January 30, 2009 at 2:15 pm

I want to laugh but I’m crying about wall street and banks afraid to drop their bonuses “because we might lose our top talent”. Oh please, is this the top talent that helped get us here? Where else do you think they are going to go for an equal compensation in today’s financial picture? Do you think the 9% unemployed and the 9% more underemployed and the small business owners and the scared-I’m-going-to-losemyjob people in this country give a royal camels behind if you lose your precious bonuses? Dream on idiots, McDonalds is hiring.

Comment by topmagnet - January 30, 2009 at 2:17 pm

It’s tough, though…although profits are down in all areas, there are generally only a few groups producing losses…so how do you retain those bankers who are making you money?

Comment by Anonymous - January 30, 2009 at 2:19 pm

End of the year bonuses should be soley based on your ability to beat your benchmark. The fact that the benchmark returned -30% is not your fault. So, a -29% return is bonus-worthy.

Comment by Andy Van - January 30, 2009 at 2:21 pm

I found your comparison of after tax bonuses with $60K annual rent in NY to be a stretch. Most people split the rent with roommates. Generally, living with another roommate would halve that rent to $30K.

Comment by Will in L.A. - January 30, 2009 at 2:24 pm

Go Obama! Time to get Ken Lewis and the Merrill boys to feel some of the pain they have exacted on the taxpayers. I hope Cuomo reclaims the Merrill bonuses. Thain’s claim that bonuses are required to retain top talent is a joke. With over 100,000 layoffs on Wall St. this year alone I’m sure there is available talent. And if billions in last minute losses is what top talent buys you - I think even the government can do better when they nationalize BofA. Can’t wait to see bonus totals for BofA employees and how that matched up against Merrill. My guess is Temple Sloan and the rest of the sleep-at-the wheel BofA Bd. cut the bonus pool dramtically to prop up Ken and make him look more prudent than Thain.

Comment by Annoyed - January 30, 2009 at 2:25 pm

I’ll believe the execs “get it” when I see their heads on pikes lining Wall Street.

Comment by Frank - January 30, 2009 at 2:26 pm

Some of the blogs mention talent, but what talent is there in testosterone induced myopia, talent is recognising and taking stock of the experience one has gained, and put to proper evaluation of the job at hand.

Comment by FED UP!! - January 30, 2009 at 2:27 pm

I’d like to see retroactive clawback on bonuses to Managing Directors and above.

It’s nice to have rules that anticipate the future, but we need also to show that we can go back and get people who game the system to cheat investors.

The People still need money back from Rubin, Prince, Blankfein, etc.

Comment by BamBam - January 30, 2009 at 2:27 pm

Evan, well written and balanced column.

To Anonymous at 2:02 pm:

It’s hypocritical to justify unwarranted bonuses for bailed-out bankers by blaming Obamanonics. Bonuses are not an entitlement - yet the same people who (rightly) criticize the “entitlement culture” are oblivious to their own sense of entitlement!

Comment by Anon - January 30, 2009 at 2:28 pm

The problem is that the average taxpayer as well as the average politician sees regular base pay as what is attracting and keeping talent, while a bonus is something you get only for good performance above and beyond what would be considered just doing your job. So to pay out bonuses when clearly companies are underperforming, which means someone somewhere must have underperformed in their job, just doesn’t make sense. Especially when it is taxpayer money being used to pay out the bonuses, not profits made by the companies’ employees.

Comment by AZ - January 30, 2009 at 2:29 pm

Paying bonuses for one year performance encourages Wall Street to roll the dice and go for the big win. If it pays off, they get paid extremely well. If nothing happens, they get to mark their own positions and say the trades are still at a gain. If it blows up (like with subprime), they threaten to leave unless they get a bonus.

Comment by John Galt - January 30, 2009 at 2:35 pm

Perhaps the cost of living is so high in manhattan because salaries are widly inflated. I also like that -30% benchmark comment. Give me your money, I’ll invest it in my UndertheMattress Fund. It is guaranteed to return 0% this year- which will probably outperform most other funds. Bonus time, baby!

Comment by Hank - January 30, 2009 at 2:36 pm

“Goldman still sets aside 45% or so of its net revenues as compensation”

As I wrote in 1776…..The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

Comment by Adam Smith - January 30, 2009 at 2:38 pm

yes on the national standard, the 125k base salary for a Citi director who works in a dept that netted 900B in revenue for 08, but cut that in half to 65k, 15k in local taxes, 400 a month for commuting, 2 kids in private colleges, a mortgage, 2 cars, insurance, food, and more-tell him or her that he or she is just is 50x more well off than everybody off in middle America

Comment by CT - January 30, 2009 at 2:44 pm

I am originally from the NY/NJ area,worked on Wall Street from 1985-1990, then moved to Seattle primarily for quality of life reasons. Even today, two decades later, as an executive for a very profitable company, I have yet to earn in cash compensation in a single year what I made in my 20’s just a couple of years out of business school. And I was just a rank and file junior level banker at the time! I wasn’t even making big money. I can only imagine how excessive the pay must have reached since then(before the collapse of today).

Comment by Seattle Guy - January 30, 2009 at 2:45 pm

How much do you tip for bad service at a restaurant?

Comment by Annonymous - January 30, 2009 at 2:46 pm

My bonus will be $17k this year, before taxes, which is roughly 10% of my salary. I’m a senior manager in New York. I will be extremely disappointed if I lose my bonus, given the fact that Merrill already paid theirs out.

Comment by BofA Guy - January 30, 2009 at 2:47 pm

If a firm needed TARP money to keep from becoming insolvent, no bonuses and no dividends should be paid. None. Citi is insolvent. So is/was Merrill. When you’re insolvent, you’re broke. What kind of bonuses did Lehman employees receive? What dividend did they pay in the 4th qtr? Unless and until those firms who received funds buy back the equity, they shouldn’t be allowed to pay dividends or bonuses.

Comment by MB - January 30, 2009 at 2:48 pm

do you pay people who make crappy cars? the huge losses this year stemmed mainly from horrible market conditions-both stocks and bonds, and significant writedowns, bankers still go to work everyday-only to be harassed 100 times a day by dissenters…have you even been to a top IB interview? good luck-the competition is much more difficult and 20k applications come in each year for at most 50 positions? we still pay billions a year for tobacco-where are their hate mongers for more or less producing a death trap?

Comment by Anon - January 30, 2009 at 2:51 pm

Look at the Wall Street bonuses as pork for New York. Without the bonuses, NY would have even more severe economic woes, not that most Americans care about NY. The TAPR and bonuses are just stimulus for NY. Most of those people will see tax hikes from Uncle Barry O, Auntie Nancy and Pappa Harry. Actually without the bonuses, they may be entitled to a stimulus check.

Comment by Anon - January 30, 2009 at 2:52 pm

You can debate the “talent” level on Wall Street, but the reality is significantly reducing/eliminating bonuses at the bailed out firms will only drive the best people to firms without taxpayer money or to alternate careers. Then you can kiss all the taxpayer money already invested goodbye.

Comment by Anonymous - January 30, 2009 at 2:53 pm

One should recognize that many of the costs of living in NYC and surrounding areas (e.g. housing costs) are functions of salaries and bonuses in the area. That is, you cannot say that the expense of living in NYC necessitates significant bonuses (or compensation, more generally). One could argue that out-sized pay (for what turns out to have been shoddy work) drove the cost of living in NYC too high. Now it, just like the pay of Wall Streeters, needs to adjust. Downward.

Comment by Bubba - January 30, 2009 at 2:55 pm

To make $ million on wall st you have to bring in $10-20 Million in fees.

Many entire departments, divisions, subsidiareies of Fortune 500 companies dont even make that.

Bankers get 10%; same as any other big-ticket salemsan (realtors, plane, yacht brokers, etc)

The 10% commission rule has been there since babylonian times

Comment by $ - January 30, 2009 at 2:55 pm

Actually John Galt, half that bonus is paid in stock that vests over 3 years. So those ‘record bonuses’ of the past 3 years are worthless due to the blowup of the firms’ stocks. I completely agree with the talent argument. If you have an MD that brought in $100 million in revenue, you better pay him $10 million or he’s out the door to Lazard, Greenhill, or some other firm that’s not taking TARP funds. They would happily pay $10 million for $100 million in M&A fees.

Comment by John Galt2 - January 30, 2009 at 2:56 pm

This is a typical “head I win, tail you lose” picture. You see, Merrill made $5B profit, it paid out $2.5B bonus. Merrill lost $50B, it paid out $2B in bonus, with your and my money. Is there any more sickening picture than this? Not only did it loss money in 2008, but also it lost all the profit that it made in previous 5 years combined. Technically, it didn’t make a penny in previous five years. Shouldn’t they give the bonus back?

Another thing, the reason to give bonus is, according to those crooks, to retain good people. Well, if they were so good, how come they collectively drove the company into the ground? Sickening!

Comment by epijj - January 30, 2009 at 2:57 pm

112K average is deceptive. I’d like to see the “average” for the top 10 executive in each of these companies. I don’t think anyone begrudges the worker bees their bonuses, and to belabor the relatively small players distracts from the real issue. The top (Prince, Neal, Thain) who led the charge to the bottom collected tens, even hundreds of millions. That is an outrage and that is what we should focus on .

Comment by That Girl - January 30, 2009 at 3:01 pm

Rewrite TARP rules with retrospective voting shares even for an additional $1 investment by taxpayers.
Clawbacks on any compensation structure.
Replace *all* Board of Directors for *all* banks getting TARP. Unequivocally. Up to 3 independent directors (including compensation committee)…
Provision to nationalize TARP-funded bank if performance benchmarks not met.

Comment by JQP - January 30, 2009 at 3:02 pm

For many on wall street a bonus is just deferred compensation.

Comment by Anonymous - January 30, 2009 at 3:05 pm

the sense of entitlement on wall st amazes me… and i work on wall street. without the bailout money, all of these banks would be in bankruptcy right now - and you know what that means? NO BONUSES and NO JOBS. so to those who sit there and think they are entitled to anything is delusional. the reality is for any other company, bank or not, when your firm has no money, you don’t get a bonus. period. why is it any different for those on wall st? and i really don’t buy the talent horsesh*t. sure some will leave and go to the profitable HF next door, but can everyone do that? no.

Comment by anon - January 30, 2009 at 3:05 pm

First, sports agents get between 3 and 5 percent, not 10 percent. The 10 percent since ancient times argument is specious.

Second, JG2, let’s play out your example. The MD who brought in $100 million in 2007 will not be able to do so in 2009 because the credit markets, on which M&A activity depends, are frozen. Right now there is actually an oversupply of talent relative to the quantity demanded by financial activity.

Comment by MB - January 30, 2009 at 3:12 pm

To Anon at 2:28: I’m not intending to blame Obama for Wall St — all the rest of us share that and he gets a pass. But I do think he is culpable on the $800 billion (and growing fast) “stimulus” — which is at least 50% pure unadulterated pork.

My point is that Wall St and Washington are both playing the same game — “what’s in it for me” — the DC version just has more zeroes. Obama promised new leadership — so far he is failing on both counts.

Comment by Anonagain from 202 - January 30, 2009 at 3:13 pm

What talent. There businesses are failing and no bonuses should are deserve to be paid. Why don’t these business move there businesses along with their so call talent to less expensive areas around the country.

Comment by Sonny Boy - January 30, 2009 at 3:13 pm

let me also add that i’m a native new yorker. like others have said, the only reason why its so expensive to live here is because of the inflated wall st bonuses. as much as i hate to see nyc cut expenses because of lower tax income, it alone is no justification to give wall st bonuses when they drove the economy into the ground. people on wall st need to live up to the decision they made to work there: high risk = high reward in good times, but also = nothing or clawbacks in bad times.

Comment by anon 3:05pm - January 30, 2009 at 3:14 pm

I’ve worked on Wall Street for six years. As a junior person at the firm, I worked my up by putting in incredibly long hours (at least 16 a day and often on the weekends). I worked hard and busted my butt to get paid roughly 200K a year. Half of that is my bonus. That will godown 90% this year because people have a problem with my CEO making $15mm a year…..honestly I do too!! It’s absurb that he should make that much in any year….good or bad. But all that said, do I deserve to get my bonus taken away? My group of seven people made $450mm for the bank last year and we will not see one dime of it. So please try to be balanced about your views. NOT EVERYONE ON WALL STREET IS A MILLIONAIRE!!

Comment by Stop the madness - January 30, 2009 at 3:16 pm

Hang the bastard

Comment by Dummy - January 30, 2009 at 3:17 pm

A few points:

- For junior bankers, who get bonuses, let’s actually change the name to a term very familiar to many factory workers: “Overtime.” Let me elaborate: A first-year analyst at an investment bank in NYC makes $60k per year base SALARY. Factor in rent and taxes, of course, take home is maybe 60% of that. Now take into consideration that the average analyst works 80-100 hour weeks regularly, and often has no weekends or holidays - his or her hourly pay is often considerably lower than other professionals. Therefore, that “bonus” analysts earn (typically 80% to 120% of base pay, based on individual and group performance), should rather be called “overtime,” since it duly compensates the employee for the real time he or she worked. They often deserve what they get. They put in the hours.

- Where you need to take issue is with executive bonuses. Junior- to mid-level bankers do not make decisions that trigger messes we’re in now. Those come from very high up. Junior bankers’ bonuses, however, are still a big part of the bonus pool, simply because there are a lot of junior bankers. Eliminating a bonus pool hurts those who had no doing in the mess.

- A lot of bonuses at senior levels are paid in stock. This is to saddle the people running the bank with the personal interest in its outcome - sounds fair to me. However, this compensation in stock is still expensed on the P&L because of accounting rules, although no cash might not even be paid out (see share-based comp on the income statement, then look at how it’s added back to the cash position on the funds flow reconciliation). It’s not always cut-and-dry that a $1 billion in compensation is all cash.

Bottom line - banking is a culture that is foreign to those who have never worked there. Before everyone kneejerks on how bonuses should be eliminated because a bank lost money, tap the brakes and actually try to understand accounting principles and what bankers actually do.

Comment by ELW - January 30, 2009 at 3:21 pm

100% federal tax on bonuses paid above salary — the problem is solved and the taxpayer gets his money back. The irresponsible TARP-sucking corporation still owes on the TARP loan though.

Comment by tin cup - January 30, 2009 at 3:24 pm

The “10% commission rule” and similar arrangements are part of the problem, not a cornerstone on which to build. Commissions and other so-called performance-based pay-structures encourage manipulation of numbers, profits and information, because if the numbers go up so do the pay or bonus. People have incentive to lie and cheat.

Comment by Reality Check - January 30, 2009 at 3:24 pm

If traders don’t get bonuses, where will they go? There are no fast money firms left. They all drank the punch.

Comment by DK - January 30, 2009 at 3:25 pm

The same desk at all of these firms lost all of the money - the mortgage desks (because they enabled the unrealistic dream that “all US citizens should own a home”) . From a staffing and business perspective, the mortgage desk is a tiny percentage of the overall firm. Enforcing strict bonus caps across all of the other functional areas will only ensure that business everywhere gets locked down. Who’s going to underwrite the debt for US corporations? Who’s going to price the long-term hedges for insurance companies? Good luck with the economy if all of these wall street “idiots” decide it’s not worth the effort. Going to the bank will shortly be akin to going to the DMV. Be careful what you wish for.

Comment by reality - January 30, 2009 at 3:26 pm

So I am now paying the bonuses of the greedy wall-street idiots who got me into this mess ? Shows how out of wak the system is.

Comment by Tax Payer 1 - January 30, 2009 at 3:28 pm

We pay $150,000 for a house and work 50-60 hours a week to feed our family on $50,000 a year and we should pay for people on wall street to live like kings while our 401K is going south—I do not think so. They should be out of a job !

Comment by Midwest worker - January 30, 2009 at 3:30 pm

Top talent huh, tell that to my 401k.

Comment by Nevada Dad - January 30, 2009 at 3:31 pm

I agree with all the native New Yorkers posting here who want to cut these bonuses. First, these Wall Street people are really annoying to me. So I would like to use the power of the federal government (or Andrew Cuomo) to change whatever signed contracts they have for government support and expand the restrictions my government agreed to when the support was first offered. I also agree that the rank and file should be spared; they can get bonuses - by this I mean secretaries, IT people who make under $100k, etc. Anyone who wears a tie or lives in Manhattan should be subject to no bonus; if the bonus has already been paid, they must pay it back. I realize, since I live in New York, this means that personal income in NY will decline even more, and I realize that is bad for the economy. I realize this may mean the deflationary spiral accelerates in New York City, with negative effects for all kinds of store owners, employees, people in service industries, etc. That is why I would like to take the bonuses (once we have them ‘back’, although I guess they weren’t ours in the first place) and set up a special fund to pay more deserving New Yorkers. I would like to start with people in the most humble jobs–I guess they won’t really have jobs now since their customers will have no money–but we will pay them something anyway. I am not sure whether it will be less or more than they made before, but at least they may not have to work for it. A special board appointed by the government can decide how much each person gets. I also realize that the confiscated bonuses are separate from the preferred stock investments the federal government made in the companies, but I still expect the companies to pay the federal government back–it seems like they will need the money once this is all over. If the companies’ employees threaten to depart and create new, unburdened companies where they can be paid freely, we will need some kind of regulation to stop this–the most airtight would just be to require them to continue working at their jobs for, say, ten years for base salary only. Honestly, it will be the only way to protect our government’s investment in the companies. I also realize they may not have the same incentives to work hard and generate the required return on the government’s investment, but I am sure the government can pass some rules to give the government-owned companies advantages in the market to offset the drag from pay restrictions, loss of talent, etc. Finally, I am sure some of the Wall Streeters will be tempted to leave the country to work in the securities business elsewhere (especially since foreign companies will be sweeping away the dominant global market share of the US investment banks), which may necessitate some kind of border restrictions, so we will need to start requiring exit visas…

Comment by G - January 30, 2009 at 3:32 pm

Talent is running these companies and the “talent” needs to be retained??? Yeah, do us all a favor — paleez keep them….

Comment by tin cup - January 30, 2009 at 3:32 pm

‘Stop the Madness’has a good point - “I worked my up by putting in incredibly long hours (at least 16 a day and often on the weekends). I worked hard and busted my butt”, thus deserving the substantial bonus he is awarded. But, sir, you still fail to acknowledge that that is the standard in every business in this country. I too worked my butt off for years in the technology industry. BUT, when my company does not perform well and does not reach it’s annual profit goals, my bonus (much smaller than your BTW) disappears in an instant. That’s the way the rest of the country works, and The Street needs to get clue here, ’cause USA is damn angry about this greed.

Comment by frs - January 30, 2009 at 3:35 pm

Cancel bonuses. When you take a job any responsible person will know what is expected (hours, performance, etc.), and what is offered (salary, benefits, perks, vacation, etc.). If the pay/benfits are not worth the expectations, simply do not take the job. If someone is willing to work for the pay the market has set the price. If no one is willing to work for the pay the market will raise the price until someone is willing. Do not take the job and then whine for more money (a bonus). Most of America works for set pay with very little, if any, bonus. Welcome to reality Wall Street.

Comment by Reality Check - January 30, 2009 at 3:38 pm

Let’s give Congress a bonus. They are just as screwed up as Wall Street.

Comment by RLB - January 30, 2009 at 3:42 pm

“we will lose our talent”?! Who cares! There are lots of talented people who would AND COULD do those jobs for half the pay! Just because somebody has a big ego and claims they are a top “talent” does not make them one. Just look at all the overpaid professional sports players. I would rather watch college ball, where the people in the game are there for the love of the game. The use of the word “talent” is so overated! If your talent walks out to door so what… there are lots of people that would be happy to do the work, just to have a job!

Comment by FedUp - January 30, 2009 at 3:43 pm

All of you stop complaining, or your (used to be 401K) now 301K it will be soon 101K if you keep this up. Pay us the bonuses or we will just keep shorting your 301K.

Comment by 401K to 101K Message from WallStreet to you - January 30, 2009 at 3:44 pm

Indicative “bonus” numbers out BofA investment banking

Managing Directors: ~$130k
VP: $50k (that’s fifty)
Associate two years post MBA: ~$40k

“Normal year” Street range is 10-20x that; My guess is ML bankers got 5-20x BofA at comparable performance level

I am sure there are those with multi-million guarantees, but not most of us (I was a VP credited with working on $30-40m in deal fees in 2008) work 80hrs and many weekends and late nights; after tax is rough

Those who don’t know this industry will see the comps as “not bad”; those in banking and money management will understand that the little Bofa investment banking side got made an example so Ken Lewis and the Board can claim “they get it now”

Judge us however you like… we feel humiliated… most of us will find a way to get by and look forward… the aggregate numbers don’t mean much to us… some got paid millions… that’s not me and many of the Bofa bankers… we are the smucks being used so Ken can save his job.

Comment by VK - January 30, 2009 at 3:47 pm

@FedUp: “Just look at all the overpaid professional sports players. I would rather watch college ball, where the people in the game are there for the love of the game”

Sorry, I’d rather have Jamie Dimon running my multi-billion dollar operation than some average shift manager from some retail bank… Just like I’d rather have Tom Brady running my offense than some D-III quarterback with a big heart.

Comment by ELW - January 30, 2009 at 3:48 pm

No matter how you try to explain it, rationalize it,or try to justify the bonuses, they still stink. We trusted these people to handle our investments and they blew it. Pure and simple. You are probably still just as smug as you appeared on Wall Street Warriors.

Comment by Gary from Massachusetts - January 30, 2009 at 3:51 pm

Well, Sen McCaskill of Missouri has just initiated legislation to cap compensation in America so that nobody earns more money than the president.

Comment by The Party Ends Now - January 30, 2009 at 3:51 pm

Well, Sen McCaskill and the President both have lifetime pensions (and probably multi-million-dollar book deals) after they’re out of office… We don’t have that luxury. I’ll take my bonus, please!

Comment by WallStreeter - January 30, 2009 at 3:54 pm

“Who’s going to underwrite the debt for US corporations?”

An insurance company that can’t manage risks shouldn’t be in business. So why are they?

“Who’s going to price the long-term hedges for insurance companies?”

I hope not AIG.

“Good luck with the economy if all of these wall street “idiots” decide it’s not worth the effort.”

In the real world, a negative cash flow is a liability, not an asset, unless we are talking about charity, and there are much better ways to fund charities.

I don’t mean to sound overly harsh, but what is anybody producing up there on Wall Street besides self-gratification? On the otherhand, we really appreciate your investments where due-diligence was performed and someone was held accountable.
Flopping money on the table to someone that’s just there to collect it just won’t get it.

Comment by tin cup - January 30, 2009 at 3:55 pm

“My group of seven people made $450mm for the bank last year and we will not see one dime of it.”
Oh really? And exactly where can I find that $450mm on the P&L? Disappeared? Offset by “charges?” Poor baby. The only business that owes you a bonus is the one you own 100%. Everything else is at risk.
And if I were the HR guy at the place you work, I’d be firing all of you guys addicted to the current culture, and bring in a fresh crop from business schools to start over with. They’ll be happy to work for $80K with a 25% bonus “opportunity.”
And of course, I’m sure you’ll be fine. Because you can live comfortably for a long time on the 50% of your income you’ve saved from prior years, recognizing the volatility of the business you’re in. Right?

Comment by Sacandaga - January 30, 2009 at 3:55 pm

Poor souls. The REAL money is in the stock and options they are granting themselves (tax deferred) will convincing the politicians that it is CRUCIAL not to wipe out the shareholders.

The ONLY smart guys in all of this are in Wall Street. Sad but true.

Comment by Anonymous - January 30, 2009 at 3:56 pm

Hello Dream World

Maybe the folks on Wall St. should check on what pay and bonuses are at places like Google, Microsoft, NetApps, etc. where the absolutely smartest guys and girls go to work… and then start preparing to, net, make a bit less than that. You will now be paid like mid-level commercial bankers, which is what everyone on the Street is now… the idea that Wall St. pay levels had anything to do with the “talent” involved is an urban myth that no one west of the Hudson ever believed anyway.

Comment by Willie - January 30, 2009 at 3:57 pm

Couldn’t make it past first-round interviews, could you?

Offer those wimps $80k w/ your “opportunity,” then tell them they’ll be working til 2am every night and at least 16 hours on weekends, they’ll run for the door faster than you can say “Consulting!”

Comment by @Sacandaga - January 30, 2009 at 3:58 pm

You have to love this insane bonus model. When the market is up we use market perfromance to justify high bonuses. Oh, but not when the market is down we don’t want to tie the bonuses to that….. instead the rationale jumps to retention. There is no downside!

Comment by JCB - January 30, 2009 at 3:58 pm

I worked at a non profit that had come into an endowment. $20 million +. We talked to all the big banks about what they could do for us, where we could put the money etc, etc, etc. What become very clear after meeting with six of them in a row was that they didn’t know anything. They couldn’t explain their stategies, they couldn’t explain their products and they couldn’t say, except in the most general and vague way, why we should give them our money. Wall Street, as it has existed up until now was a fantasy and that fantasy has come down hard. A bonus for spectacular failure and extreme shortsightedness? I don’t think so. I saw that they didn’t know what they were doing, why couldn’t they see the same?

Comment by not surpised - January 30, 2009 at 4:01 pm

Like mentioned before - start calling it “Overtime” instead of “Bonus.” That’s the justification.

Comment by Analyst - January 30, 2009 at 4:01 pm

Want another NY scam? How about public service workers (police, fire, sanitation, transit, govt workers) that get to retire with full pension after 20-25 years. Best part, stuff your last year or two with overtime and that “grossed up” number is the basis for your pension. Many of these employees retire in their 40s with life expectancies of another 40 years. Talk about an unsustainable model. I agree, NYC is toast.

Comment by linques - January 30, 2009 at 4:01 pm

The Senators are sharpening their knives as we speak - cap bankers salaries if a bank receives TARP money. The proposal is that nobody makes more than the Pres. Hear! Hear! That sounds like a superb idea. This would be a wonderful incentive for the high paid “talent” that blew their respective banks and the US economy into hell while bilking customers, shareholders, and the US Taxpayer. The more unpalatable TARP is, the more likely that free market capitalism will work- every Wall Street “master of universe” would be well motivated to pay back the FED if they can’t get the golden ring. What else are they going to do- work for GM and there are only so folks that can write WSJ editorials. TARP can not be a stealth reward to greedy fools and the status quo can not be maintained. This entire subprime mess is just as insidious as the Madoff ponzi scheme. You can arrest him, but you can’t arrest all of Wall Street. However, you can take away the punch bowl though if the want FED money. Money motivates these guys and there is nothing more motivated than a broke banker… Set them loose on improving the economy and getting their banks out of the hole they dug for themselves.

Comment by Jeffroski - January 30, 2009 at 4:09 pm

Those who think their bonuses are deferred variable comp simply don’t understand that this form of compensation is 1)unusual 2) only recent in banking history and 3) over forever. The changes that are coming to this industry are beyond your conception, but talk to someone at an airline.

Comment by Anonymous - January 30, 2009 at 4:11 pm

ALL BONUSES IN PUBLIC COMPANIES SHOULD BE RELATED TO CASH DIVIDENDS PAID TO STOCKHOLDERS. NO PROFITS -NO DIVIDENDS- NO BONUSES. MODERN MANAGEMENT AND DIRECTORS ALONG WITH WELL KNOWN BUSINESS SCHOOLS HAVE FORGOTTEN WHO OWNS THE COMPANY.

Comment by JTD - January 30, 2009 at 4:11 pm

…so if you work in an industry where most of your comp comes in the form of a bonus based on individual performance (think investment banker or waitress), you shouldn’t get one b/c someone else in the organization screwed up?

i’d be heartbroken if I closed a bunch of big profitable deals (and therefore helped negate the need for govt funding)only to be told i wouldn’t get compensated for my hard work.

and who the heck would use 8.5% pre-tax tarp money to pay for a bonus? …and why should the govt earn that kind of return while my 401k earns negative 20%??? that cost gets passed directly to YOU, the consumer, in the form of higher cost of borrowing.

Comment by work hard… get rewarded - January 30, 2009 at 4:15 pm

Now it’s WAR ON FINANCIAL TERROR!
Why closing Guantanomo Bay ?
All Qaida OUT and All (Bonus)Bankers IN !

Comment by Cornelius - January 30, 2009 at 4:15 pm

If TARP is bad, the companies shouldn’t accept it. If they needed TARP money, they shouldn’t throw billions at the folks that drove over the cliff in the first place. I believe the operative word here is DUH.

Comment by Kansan - January 30, 2009 at 4:16 pm

Now, now, junior bankers. I understand. You signed on to a culture you thought you understood: working hard and producing results at age 24 could earn you $500K, unlike your chump brother who went to med school for eight years for the right to fight with Medicare for his $250K at age 30.
But now they want to change the rules. Turn you into wage slaves like the corporate VPs who work for your clients. Take away the dream that you could make managing director in a few years and make the really big bucks, then retire by 35 to do what you really want. Right?
Problem is, all the guys you work with had the same dream, and they let it corrupt them. To them, it was OK to sell fraudulent garbage to unsuspecting clients because if they didn’t, someone else would have. And meeting each year’s revenue target was more important than making sure the client understood the risk he was taking. Right?
Why did the whole scheme have to unravel now? Why not five years from now, when you originally planned to cash out and live a little?
It’s not fair, is it? Darn those guys in the mortgage group who schrewed things up for everybody. Because you were doing everything right, and you didn’t deserve this to happen — did you?

Comment by Sympathetic - January 30, 2009 at 4:16 pm

Hey JTD: Shareholders elect the boards who form the compensation committees… They can oust the boards of directors or the executives if they want to… It’s their fault if they don’t.

Comment by C’mon - January 30, 2009 at 4:18 pm

Wall street wake up and smell the coffee. Talent? What talent, if their was any we would not be in this economic condition. I don’t want this so called Talent managing my finances.

Comment by Wake UP - January 30, 2009 at 4:21 pm

If wall st. was losing money and needed tax payer help.
Than they should not be giving out bonuses. Were did the money come from, you were losing money. From tax sucker that’s were.

Comment by tax payer - January 30, 2009 at 4:22 pm

@Sympathetic:

Change your name from “sympthetic” to “jealous”

Comment by Junior Banker - January 30, 2009 at 4:22 pm

This discussion on bonuses needs to stop. For upper management - their bonuses should be zero. As a first year analyst in NYC our bonuses will be smaller than last year and the year before - no doubt. But we deserve them, as they are part of our accepted compensation. We work no less than we would in a boom year and our work performance does not tie to company performance. Read this article to better understand.
http://www.cnbc.com/id/28936692

Comment by banker in NYC - January 30, 2009 at 4:23 pm

Interesting comments about the long hours and the hard work on Wall St. Tell it to the medical school graduates who bust their butts for 8 years to get the “privilege” of earning $50,000 (no bonus possible!) for another 3-8 years as a resident while still working those hours.

Comment by Anon - January 30, 2009 at 4:26 pm

As a tax paying American and therefore a shareholder in these banks - I ask for the Andrew Cuomos, Clair McCaskals (sp?) and everyone else to STFU unless what they are saying will do something to help the value of these companies to increase.
Is the system broken - perhaps - should it be changed - perhaps…but all these politicians are doing is attempting to give themselves a public relations “bonus” by making pronouncements that may very possibly make the cost to the taxpayer even more.

18Billion dollars (and really only 9B after taxes) is peanuts in terms of the cost of this economic crisis and Government programs.

How about applying some thought, knowledge and study to the problem - instead of knee-jerk pandering - like always.

Comment by Shareholder - January 30, 2009 at 4:28 pm

Scorsese said it best… sound familiar ?

“The hardest thing was to leave the life. I love the life. We were treated like movie stars with muscle. We had it all. We ran everything. We paid off cops. We paid off lawyers. We paid off judges. Everybody had their hand out. Everything was for the taking. AND NOW ITS ALL OVER”

Henry Hill’s closing lament, “Goodfellas” (1990)

Comment by Willie - January 30, 2009 at 4:28 pm

Stop the B.S. about Doctors - Doctors make huge salaries and guess what - not only is a huge percentage of it - “from the Govt” (read:medicare) - but Doctors do not get fired in recessions - they keep making huge money - and guess what - they deserve it! But it is completely irrelevant to this conversation

Comment by Not a Doctor - January 30, 2009 at 4:30 pm

Hey, Anon, medical doctors have job security. Analysts only get 2-year contracts, with the possiblity of a third year. If they’re gonna work us like dogs for two years, then drop us for the next batch of analysts, then they’d better pay us well for those two years.

A doctor will trudge through residency, but afterwards will be set for life with job security. I don’t think the plastic surgeons and dermatologists on the upper east side are strapped for cash right now.

Comment by Doctors - January 30, 2009 at 4:32 pm

You don’t get it “banker in NYC”. You may have worked your tail off but it brought nothing to the world. The banks were a scam, they provided no service that was necessary or beneficial to anybody but themselves.

Comment by non banker - January 30, 2009 at 4:32 pm

Banker in NYC - That your performance is not tied the performance of the firm sounds like the root of the problem… Sounds like a breeding ground for sloppy risk management and a Cowboy mentality.

Comment by Anon - January 30, 2009 at 4:34 pm

Scorsese said it even better next time: (Casino, 1995)

“Nobody knew the details, but it shoulda been perfect…but in the end, we f***ed it all up. It shoulda been so sweet too. But it turned out to be the last time street guys like us were given anything that f***in’ valuable again”

Ace Rothstein and Nicky Santoro’s lament

Comment by Willie - January 30, 2009 at 4:35 pm

Non banker, you’ll understand just how much you all rely on banks and the capital markets once they’re no longer around because of populist garbage. When your small business can’t fund your paycheck or cyclical companies can’t fund their working capital during the off years, you’ll miss those banks.

Comment by ignorance - January 30, 2009 at 4:35 pm

My group made something like 15-20 billion last year trading currency derivitaves. My base is a paltry 100k, but my bonus will be roughly 250k. Outrageous? Not a chance. I work 70-80 hours a week, owe 100k plus on school loans, and owe 500k on my condo mortgage. There’s no way in hell I’d be where I am today without that bonus. Matter of fact, I was actually slated for a bonus of 400k until a few weeks ago. Leave me alone, let me make my money, and everything will turn out fine.

Comment by Goldman Child - January 30, 2009 at 4:37 pm

All you people who think that paying zero bonuses to employees will save the gov’t money don’t have a clue about this business. Pay them zero and they all walk as soon as they get the chance. Maybe that’s not for another year, but it will happen. Pay them zero and the taxpayers’ investment is worth zero. Good luck with that.

And stop lumping “wall st” into one category. The majority of the groups were net contributors to the bottom line - after paying out bonuses.

Bonuses on Wall St are not bonuses for exceptional performance. They’re part of annual compensation. People rely on them. Try living in Manhattan supporting a family of 4 on a base salary of $125k per year, all the while putting in 100 hours per week. That’s $25 per hour.

If Wall St has it so easy, why don’t all the haters come and work here??? B/c it’s tough and it’s risky, and the people who can handle it are compensated for taking that on. So stop your whining.

Comment by Ur Idiots - January 30, 2009 at 4:40 pm

…[bankers] provided no service that was necessary or beneficial to anybody but themselves.

Yeah I guess its not necessary to have a mortgages, corporate bonds, municipal bonds, stocks, annuities,etc….

People sound more intelligent when they do not exaggerate or speak in pure hyperbole.

Comment by u-r-an-idiot - January 30, 2009 at 4:40 pm

what does it matter if we’re outraged about wall st. bonuses? Unless a firm is taking gov’t funding, taxpayer opinion doesn’t mean a thing nor should it. That’s capitalism and if shareholders want these enterprises run into the ground they can agree to pay bonuses as large as they like.

The other side of this is that we taxpayers shouldn’t be held responsible when these firms run themselves into the ground. If you’re silly enough to provide short term financing to a casino (oops, i meant to write brokerage house) to fund god knows what investments then you deserve to lose as much money on your investment as the market dictates. Don’t make me, the taxpaying net borrower, finance the relatively wealthy net lenders losses. The government can step in and buy these things at liquidation prices when the time is right. Save the employees and any depositors but let the creditors bear the costs of mispricing risk. Capitalism will clean this up but if we don’t let it work we’ll be facing the same crisis before long.

Comment by common sense - January 30, 2009 at 4:41 pm

Most people commenting don’t realize that bankers on wall street do not usually get paid high salaries in relation to the cost of the area. The bonus is made up of commissions for deals closed and profit brought to the firm. Some divisions made money and people should get paid for their efforts.

Comment by Annoyed - January 30, 2009 at 4:42 pm

Goldman Child doesn’t understand he’s just a “grease guy” (Bill Gate’s term for IB), whose team engaged in wealth transfer based on unlimited leverage. That deal is dead, thus your earning opportunity is no more. And when you look around, where can you go ? Who would hire you for a third of what you made last year ? With your attitude, who would hire you at all ? It’s tough to be 28, smart , well-educated, and permanently unemployable.

Comment by Willie - January 30, 2009 at 4:42 pm

By the way, why doesn’t anyone point out the hubris on the part of multi-millionaire politicians like Clair McCaskill demonizing bank employees for collecting a $150k bonus? She has no problem collecting her $200k/yr for producing absolutely nothing but dopey legislation.

Comment by Pot meet Kettle - January 30, 2009 at 4:44 pm

Dear Goldman Child - Wall Street lost their right to make ocmpensation decisions when they begged for and receivede taxpayer money. If you think you work too hard for the salary you receive, you have the right to take your skills to the next highest bidder. Isn’t capitalism great?

Comment by taxpayer - January 30, 2009 at 4:45 pm

“But we deserve them, as they are part of our accepted compensation. We work no less than we would in a boom year and our work performance does not tie to company performance.”

This, truly, sums up the culture of mass deception on Wall Street — “I deserve it, because I worked hard. And my team delivered.”
Tell that to the people of Wilmington, Ohio, who sorted DHL packages and stuffed planes in bitter cold by night and ran their farms by day to afford to send their kids to college.
They worked a heck of lot harder than you did. They delivered. Where’s their bonus?
Oh, that’s right — it’s going to the U.S. Treasury to fund bailout payments so you can collect your “accepted compensation.”

Comment by Sacandaga - January 30, 2009 at 4:48 pm

The TARP was put in place to prevent a systemic collapse in the financial system. I don’t think we should be trying to prevent a systemic collapse AND largely preserving the quality of lift at these Wall Street firms. its outrageous that bankers at any level could be making any more than $250K/year (and that may be stretching it). Otherwise, the compensation sked and the cheap financing are not enough incentive for firms to spinoff assets and/or pay down taxpayer preferred.

Comment by Gabe - January 30, 2009 at 4:50 pm

Taxpayer, Most of the problems we are facing today have to do with to much government involvement. Don’t forget Bear was cash flow positive when it went down. If the foolish mark to market was suspended, the banks would not need money to enhance ratios. Since the FED caused the problem, they know they need to provide some assistance.

Comment by FED up - January 30, 2009 at 4:52 pm

Taxpayer-please don’t be so flip with my $ - I’d rather get my money back from Wall St, then the satisfaction of kicking “the rich guy” - although I admit it is fun kicking them….not sure this is the trade-off we face, but you, or Clair McCaskill (and most others) don’t know either; so until you know - STFU

Comment by also a taxpayer - January 30, 2009 at 4:54 pm

“mortgages, corporate bonds, municipal bonds, stocks, annuities,etc….”

Oh, no. No exaggeration or hyperbole ever came out of the investment banks while they were still alive. None at all.

All these stocks, derivatives, and securitized mortgages are worth soooo much now. Thanks Wall St!

Comment by u-r-an-idiot 2 - January 30, 2009 at 4:56 pm

“Yeah I guess its not necessary to have a mortgages, corporate bonds, municipal bonds, stocks, annuities,etc….”

It is necessary to have all of those things. But it’s not necessary to have you provide them, especially when you’ve proven your principal goal is to cheat your clients.
Bankers in London, Frankfurt, Singapore, Hong Kong and Beijing make on average a third of what you make, and will be happy to have the business. Let’s let them have it.

Comment by Sacandaga - January 30, 2009 at 4:58 pm

It is still amazing that Wall Streeters will use the logic of attracting talent as the rationalization of bonuses… OK so you don’t get the. Where are you going to work? Join the rest of us who have to struggle with that very question.

How many out-of-work middle class workers now face the prospect of employment selling sweaters at 1/4 of their previous salaries?

And to “Ur Idiots”, yes I work many more hours a week than 35 and I am raising a family in Manhattan on LESS than your base salary WITHOUT prospects of a bonus… so what planet are you from?

Just another example of greed, entitlement…

Comment by Peter - January 30, 2009 at 5:00 pm

Sacandaga, I’ll bet we can offshore whatever job you have for a third of what you make. Should we do that too?

Comment by We are all taxpayers - January 30, 2009 at 5:05 pm

Not everyone has to live in Manhattan–that’s why they built trains to NJ, LI, upstate NY, and CT for crying out loud–and some of these people do seem to be crying out loud! The idea that these people are really “worth” millions or tens of millions is absurd. It’s just that it’s become a boys club and I’ll scratch yours if you’ll scratch mine while everyone else gets fleeced. The “Masters of the Universe” have been revealed to be the “Thieves of the Universe” and the “Masters” have no clothes. Everyone seems to get this but them. All will suffer, but some have millions to cushion the blow. No sympathy here.

Comment by Mr. Potter - January 30, 2009 at 5:05 pm

I think Sacandaga’s point is that these people are overpaid for what they do, not that the jobs should be outsourced. Calm down.

Comment by to We are all taxpayers - January 30, 2009 at 5:07 pm

to “also a taxpayer”
It’s not your $$$ that’s the point! and as far as “until you know” logic, it’s obvious to all (including Our President) that you are in the wrong side of history.

Comment by Peter - January 30, 2009 at 5:09 pm

Mr. Potter, I live in NJ and work in NYC, It’s not much cheaper and you still have to pay NYC tax.

Comment by Annoyed - January 30, 2009 at 5:10 pm

Good thing these bonuses prop up the value of homes in the tri-state area. Imagine how much whining we’d hear if the Wall Streeters and NY Media was experiencing the 40% decline in home values that many Main Streeters have. My bet is that Main Street could bare the hardship of surviving on its own before Wall Street could.

Comment by PJ - January 30, 2009 at 5:12 pm

I am calm. Who is to say what another should make. We all choose a job and agree on compensation. When we perform a job we expect to be paid.

Comment by We are all taxpayers - January 30, 2009 at 5:14 pm

Why don’t all you highly overpaid i-bankers and wall st buccaneers surrender your sense of monetary entitlement and do something for humanity instead of lusting after that Beamer 700 series and the oh so perfect McMansion in the oh so perfect NJ suburb where you stand in the cold waiting for the train to nirvana just give it all up and either a) join the Cistercian order and humble yourselves daily asking forgiveness for your gree or b) do something for humanity, like join the Peace Corps.

Comment by Woodstock vet - January 30, 2009 at 5:15 pm

Sacandaga - What are you smoking? European bankers do not get paid less, HK, SG and CN bankers get paid rather comparably, especially considering cost of living adjustments.

Comment by What are you smoking? - January 30, 2009 at 5:16 pm

Hey Woodstock vet, Is that you Obama?

Comment by Someone’s gotta say it - January 30, 2009 at 5:21 pm

@ Woodstock Vet:
I’ll attack 2 first: Already did Peace Corps. I like the Wall Street pay better. In answer to your first question: Don’t wanna be a Cistercian, too reclusive. I’d much prefer the Jesuit, Franciscan or Paulist order - better interaction with people and more grounded in reality. But thanks for your suggestion nevertheless.

Comment by Because - January 30, 2009 at 5:22 pm

“We all choose a job and agree on compensation. When we perform a job we expect to be paid.”

That’s the problem, they didn’t perform. They’re all bankrupt and it’s their own fault. They sold (and sometimes invented) securities saying they were worth $5 when they were worth maybe… -$5. If they had been doing their jobs they would have recognized the risk and never touched that glorious too-good to-be-true $5 security.

It was all a fantasy, or a derivative of a fantasy.

Comment by canal street - January 30, 2009 at 5:24 pm

What folks in Manhattan don’t seem to grasp is how totally everything has been distorted by the extraordinary flood of finance $$ into the city over the last decade. As the industry shrinks dramatically this year, and comp shrinks further, NYC will enter a much long and deep period of recession… Houston went through this in the late 80’s early 90’s after oil collapsed. The problem is you overpaid banking guys have made NYC untenably expensive for every other form of business except serving you, so they’ve all moved elsewhere while you weren’t looking. And no new businesses of consequence have been created in NYC in over 50 years. Now that you won’t have any extra money, there will be a very long and painful adjustment, much deeper and longer than the rest of the country will face. But at least artist’s will be happy with the cheap empty space.

Comment by Willie - January 30, 2009 at 5:25 pm

Wall Street Bonuses are just the latest poster child for the economic crisis. The speed at which the economy collapsed certainly hints at a more fundamental weakness than a housing crisis caused by Wall Street. We were an economy fueled by low savings and high leverage. For years, we were encouraged to save more because of the anemic savings rate in this country but ignored the warning and spent more on a borrowed dime Now we are hearing about stimulus packages to encourage us to spend more. I guess we can worry about the savings rate when as the waves of baby boomers start drawing on social security. The wall street bonus structure is being replicated all across the country right now at companies that might not be getting TARP money but that certainly get (and have gotten for years) government subsidies in the form of tax breaks, grants, contracts and other less visible forms of direct government support. So instead of continuing this rifle shot approach to economic policy, perhaps it is time to take an end to end look at what role the US government plays in backstopping American business and what price American business should pay in return. Maybe the “to small to saves” will be able to better compete against the “too big to fails” if the backstop is competitively priced. And if we get through this, the US government will own the world’s largest equity hedge fund and could potentially make an absolute killing. Perhaps it would be Social Security Problem Solved.

Comment by Latest poster child - January 30, 2009 at 5:25 pm

Not everyone on wall st was involved in the subprime or derivatives of mortgages. There are some areas of the banks that made money and the bankers who added to the profits of the bank deserve their bonus.

Comment by We are all taxpayers - January 30, 2009 at 5:29 pm

“Sacandaga, I’ll bet we can offshore whatever job you have for a third of what you make. Should we do that too?”

I run that risk every day for the business I own and operate. Fortunately, my clients continue to believe that I add more value than their alternatives could. Can all of your clients say the same? Probably not today.

And to “What are you smoking,” you know better. Only the Euro and Asian bankers who work for U.S. firms make NY money. The ethical people who work for the established firms in those markets make much less, and will soon be making a lot less. Compensation based on 30X leverage is gone. As someone said above, you’re all commercial bankers now. Prepare to be paid accordingly, if at all.

Comment by Sacandaga - January 30, 2009 at 5:29 pm

finally an article in the journal that is not unabashedly bashing Obama and actually understand the problemrewarding these jokers who got us into this mess!

Comment by amen - January 30, 2009 at 5:30 pm

@ Scandaga

Forgive me, I didn’t realize Deutsche Bank, UBS, Barclay’s and Credit Suisse were US-banks. My mistake.

And Asian banks? What a joke. They don’t even have developed capital markets. They still insist on 100% ownership. Please!

Comment by HAHA - January 30, 2009 at 5:35 pm

While it is true that not everybody was involved in the mortgage or derivatives mess, the overseers of their respective banks, the bosses, killed their companies and practically an entire industry. If you were a banker working diligently and making a profit for you company, I am sorry but your boss, the bright guy up there, just %&$#ed you.

They thought they were so smart they couldn’t see how stupid they were.

Comment by canal street - January 30, 2009 at 5:35 pm

I fundamentally oppose the government dictating what firms can or cannot pay executives and/or other staff.

That said, no financial firm that has had to take bailout money should be permitted to pay any cash bonuses at all until the government’s money has been repaid. If they want to pay bonuses in shares of common (not preferred) equity, or in securitized toxic assests that might later be worth something, fine. But, not one penny of cash. If that’s the case for all firms taking government money, then there won’t be problems with people moving around.

Comment by Cato - January 30, 2009 at 5:35 pm

It is interesting that folks who claim to be specialists in finance don’t understand that if an entity as a whole is bankrupt, the fact that some bits “made money” is irrelevant….the whole point is there IS no money to pay bonuses. Maybe it’s acctg. you don’t understand. Now I understand why Paulson felt he had to make an example out of Lehman, since folks still didn’t get it after Bear. YOU ARE ALL BANKRUPT…YOUR COMPANIES HAVE NO MONEY TO PAY YOUR BONUS WITH… YOU ARE ON GOV’T WELFARE… WELFARE DOESN’T PAY WELL, AND IS PAYS NO BONUS. It is not your fault, in general, but you are being re-structured just like all of those old rust bucket companies in Cleveland you used to think were so pitiful. Welcome to reality.

Comment by Willie - January 30, 2009 at 5:36 pm

I’m a 2nd-year Associate at Goldman. Just got paid $120k bonus on top of my $120k base. I’m happy!

Comment by Rainmaker - January 30, 2009 at 5:39 pm

Sacandaga, I didn’t loose any money, I made the firm quite a bit and my clients are satisfied with my performance and ethics. I sincerely hope your business continues to do well since our economy depends on all of us doing well.

Comment by We are all taxpayers - January 30, 2009 at 5:40 pm

The key point in all of this is that the financial firms would be in Chapter 11 (or Chapter 7!) if they had not taken the taxpayers’ money for a bailout. They would not be receiving salaries now in most cases, or bonuses in any cases. It doesn’t matter how hard the individual bankers worked or how much money their group made for the firm - plenty of people work damned hard and are out in the cold when their firms go bust.

The government should generally stay out of compensation decisions, but give the firms a simple choice: rescind the bonuses in toto or the government calls the loans and puts them in bankruptcy.

Welcome to the real world.

Comment by Cato - January 30, 2009 at 5:42 pm

We should feel humiliated about our shitty bonus! We put ourselves in the hole and now we are complaining about how we can’t afford private school education and how our wives have to use coupons. Times are tough…develop a plan and execute!

It’s funny that most of the bankers that I know are horrible financial planners. So, we should take this time to reflect and fix our inefficiencies. i.e. maybe taking a black car everywhere is not a good idea right now….I mean, what’s the rush given the circumstances.

And all this nonsense about preserving talent; if have to get paid to keep our bum glued to the chair then pay our bonus to an escrow account(which could be used by the bank in the event that the bank needs a capital injection)…I read an academic paper on this…great idea!

And to add insult to injury…..I love the guy who started talking about how much he made for the firm and that he deserved something. First of all, this is a slave ship bud, you’re not the only one on board! You’re right though, you deserve something. Someone suggested above that all the toxic waste should be put in to one toxic pool and your bonus could be a passthrough certificate:)

Comment by BankerC - January 30, 2009 at 5:45 pm

My tax money went to these arrogant assholes? We should have kept our money and let the whole thing collapse, and start fresh. Let’s see how much bonus they get in the new system.

With the TARP money going to these guys, I don’t have much faith that the country is going to be back in business any time soon. And it’s easy to see how we got in this mess in the first place.

Comment by Another taxpayer - January 30, 2009 at 5:46 pm

We should feel humiliated about our bonus! We put ourselves in the hole and now we are complaining about how we can’t afford private school education and how our wives have to use coupons. Times are tough…develop a plan and execute!

It’s funny that most of the bankers that I know are horrible financial planners. So, we should take this time to reflect and fix our inefficiencies. i.e. maybe taking a black car everywhere is not a good idea right now….I mean, what’s the rush given the circumstances.

And all this nonsense about preserving talent; if have to get paid to keep our bum glued to the chair then pay our bonus to an escrow account(which could be used by the bank in the event that the bank needs a capital injection)…I read an academic paper on this…great idea!

And to add insult to injury…..I love the guy who started talking about how much he made for the firm and that he deserved something. First of all, this is a slave ship bud, you’re not the only one on board! You’re right though, you deserve something. Someone suggested above that all the toxic waste should be put in to one toxic pool and your bonus could be a passthrough certificate

Comment by BankerC - January 30, 2009 at 5:47 pm

Cato - are you even familiar with what you’re talking about? You know the difference between debt and equity? If TARP funding is a loan, they have no ownership and thus cannot make compensation decisions. If it is equity, they cannot “Call” the “loans.”

Comment by ??? - January 30, 2009 at 5:48 pm

“And Asian banks? What a joke. They don’t even have developed capital markets. They still insist on 100% ownership.”
No developed capital markets in Hong Kong, Seoul, Singapore and Tokyo? I think most of your peers would disagree.
And remember, software engineers, accountants and radiologists were laughing about the prospect of their jobs being outsourced a few years ago. They’re not laughing now.

Comment by Anonymous - January 30, 2009 at 5:51 pm

80% of the bonus pool goes to the top 20% percent. Goldman’s top 3 guys made 60 million+ bonus last year. That is 180 million for 3 people! If you live in a hotel for $1000 a night and you spend $1000 a day, that would be roughly equal to $750,000 a year, maybe $1 mil before taxes. How on earth can anybody justify making $60 mil a year? If they make 5 mil a year, with the remaining 50 mil, you can keep 250+ people at 200K per year. The inequality of compensation is simply outrageous.

Comment by 80-20 rule - January 30, 2009 at 5:51 pm

Let’s make it very simple:

TARP= No Bonuses.

No TARP= Bankruptcy.

Choose.

Comment by answer to ??? - January 30, 2009 at 5:52 pm

My wife and I make a healthy combined low six-figures. We have diligently maxed-out our 401s over the last several years, only to see the values slip below our contributions - at this point we would have been well ahead by not investing. Our stocks, like everyone else’s, have been trounced. Now we hear there is a bonus party that we as tax payers are sponsoring. Disgusting!

The actions of Wall Street have made us fundamentally reexamine how we are going to save and invest in the future; we will no longer put any money in any vehicle that is directly managed by Wall Street. No more mutuals. No more stocks. Our future investments will be in Treasuries, locally-run money markets and our credit union savings. The return will be low, but not negative. We are more likely to buy another General Motors car than make another investment managed by Wall Street - and that’s not very likely!

Maybe the French had the right idea when they rolled out the guillotine.

Comment by Jason In Tulsa - January 30, 2009 at 5:52 pm

Hey Anonymous - Their cap markets are mostly underwritten by US banks who understand capital markets, and their economies are dependent on western trade partners.

Comment by Anon - January 30, 2009 at 5:53 pm

We should feel humiliated about our bonus! We put ourselves in the hole and now we are complaining about how we can’t afford private school education and how our wives have to use coupons. Times are tough…develop a plan and execute! It’s funny that most of the bankers that I know are horrible financial planners. So, we should take this time to reflect and fix our inefficiencies. i.e. maybe taking a black car everywhere is not a good idea right now….I mean, what’s the rush given the circumstances. And all this nonsense about preserving talent; if have to get paid to keep ourselves glued to the chair, then pay our bonus to an escrow account(which could be used by the bank in the event that the bank needs a capital injection)…I read an academic paper on this…great idea! And to add insult to injury…..I love the guy who started talking about how much he made for the firm and that he deserved something. First of all, this is a slave ship bud, you’re not the only one on board! You’re right though, you deserve something. Someone suggested above that all the toxic waste should be put in to one toxic pool and your bonus could be a passthrough certificate

Comment by Anonymous - January 30, 2009 at 5:56 pm

We should feel humiliated about our bonus! We put ourselves in the hole and now we are complaining about how we can’t afford private school education and how our wives have to use coupons. Times are tough…develop a plan and execute!

It’s funny that most of the bankers that I know are horrible financial planners. So, we should take this time to reflect and fix our inefficiencies. i.e. maybe taking a black car everywhere is not a good idea right now….I mean, what’s the rush given the circumstances.

And all this nonsense about preserving talent; if have to get paid to keep ourselves glued to the chair, then pay our bonus to an escrow account(which could be used by the bank in the event that the bank needs a capital injection)…I read an academic paper on this…great idea!

And to add insult to injury…..I love the guy who started talking about how much he made for the firm and that he deserved something. First of all, this is a slave ship bud, you’re not the only one on board! You’re right though, you deserve something. Someone suggested above that all the toxic waste should be put in to one toxic pool and your bonus could be a passthrough certificate

Comment by Anonymous - January 30, 2009 at 5:58 pm

America can’t afford the “talent” on Wall Street that helped create this mess.

NO BONUSES FOR ANYONE MAKING OVER 200K (that’s my concession to the high NYC cost of living)

Comment by Steve J. - January 30, 2009 at 5:58 pm

“Sacandaga, I didn’t loose any money, I made the firm quite a bit and my clients are satisfied with my performance and ethics. I sincerely hope your business continues to do well since our economy depends on all of us doing well.”
I’ll assume your last comment was sincere, but I’ll still challenge it. Our economy doesn’t depend on all of us doing well. It never has, and never will. Old businesses and old business models must die so new ones can emerge. It’s painful, but not as painful as subsidizing businesses that destroy themselves through greed.

Comment by Sacandaga - January 30, 2009 at 5:59 pm

??? Do you have a clue? I’ve been practicing finance and securites law for almost 30 years on Wall Street. It doesn’t matter whether TARP is equity or debt - it is all about the conditions of the financing. And, the f-ing condition should be if the government keeps your ass out of bankruptcy, you can’t pay a penny in cash bonus compensation.

If you want to pay bonuses with your common equity, or with the “toxic” assets that TARP was set up to buy, that’s fine. You’d find market clearing prices real quick as the bonused bankers unloaded the stuff for pennies on the dollar.

Comment by Cato - January 30, 2009 at 5:59 pm

Taken from DealBreaker.com, on the plan that nobody can be paid more than the President:

Cash Compensation:
Salary: $400,000

Cash Subtotal: $400,000

Room and Board:
55,000 square foot mansion, in historic Washington, D.C.: @ $100/sqft: $5,500,000/yr
Personal Chef / Kitchen Staff: $300,000 / year
Other Servants / Attendants: $500,000 / year

Subtotal: $6,300,000

Discretionary Use Of Private Aircraft:
(One of 2 Boeing 747-200Bs “Air Force One”):
Annual Costs: 120 hours @ $65,000/hr: $7,800,000

Helicopter Fleet:
Annual Costs: 50 hours @ $5200/hr: $260,000

Aircraft Subtotal: $8,060,000

Other Personnel:
Personal Driver On Retainer (Defensive Tactical Driving Trained) @ $300/day $109,500
Personal Body Guards 35 @ $500/day $6,387,500
Use Of Personal Car 60 days @ $2000/day $120,000

Personnel Subtotal: $6,617,000

Annual Benefits Total: $21,377,000

Pension And Related Benefits:
Present value of Pension Benefits ($200,000 per year): $2,251,556

Total Benefits: $23,628,556

Comment by Comp - January 30, 2009 at 6:00 pm

The key point in all of this is that the financial firms would be in Chapter 11 (or Chapter 7!) if they had not taken the taxpayers’ money for a bailout. They would not be receiving salaries now in most cases, or bonuses in any cases.

That’s not true - Lehman Bros. squirreled away a few billion for “retention bonuses”

Comment by Steve J. - January 30, 2009 at 6:00 pm

The outrage should not be the bonuses the outrage should be the bailout. Let them sink. That is what capitalism is all about.

Comment by valerianogarcia - January 30, 2009 at 6:01 pm

They can reduce bonus and do whatever, but they will have to raise the base first. The base is low to begin with, and Obama still wants to squeeze money out of the people’s half base/half bonus “bonus”? Moron.

Comment by In NYC - January 30, 2009 at 6:12 pm

These pale face scumbags, on the Street or elsewhere, will always refuse to get it when all they’ve learned throughout their lives is dollar signs. That’s all they’ll ever know. No moral! Ethics? What’s that?!? Look at what the CEO of JAL does in his everyday-job that was aired on PBS a day or two ago. Then look at how–and what–Americans drive on the road, anywhere in this country. What do they ever teach in schools on these lands? Just wait till these kids, overdosed with rap and drugs, take hold of one of these offices, high- or otherwise, and stay in charge later…

Comment by Joe Moe - January 30, 2009 at 6:14 pm

-tear- It’s not fair. Where’s my big bonus?

Comment by College Student-Wall St.Intern - January 30, 2009 at 6:32 pm

ELW,

Why do we need so many bankers working so many hours when this is what we get? That is the real question. The outcry would be far less if the banking industry made something of value. I deal with bankers all of the time, and they are basically smooth talking car salesmen.

I’m sorry these kids are working so hard. I don’t doubt it - staying up late producing pitch books and taking verbal abuse from their car-salesman managing directors, etc. But, I know a guy who works 80 hours a week selling hot peppers on the sidewalk of el paso TX, and he hasn’t blown the economy up in the process. Why don’t we just give him the damn money?

The point is bankers, junior or senior, aren’t worth it. Now, it is one thing if banks with privatized profits want to pay their privatized margins to employees in the form of a bonus, but is another when these companies stoop to surviving off taxpayer money but still pay these unwarranted bonuses.

Comment by Indy - January 30, 2009 at 6:40 pm

i’ve commented above twice already, but to address what others have said about how bonuses are a normal part of compensation, you are all still missing the point. trust me, i get it. i work on wall st. we all expect some kind of bonus or we wouldn’t work on wall st, BUT this time it is different. You all fail to recognize that all the banks would be in bankruptcy (and out of a job) without TARP - so really, its kinda of hard to defend any bonuses no matter how much money you made the firm. It doesn’t matter whether you or your group made money for the firm, because the rest of the idiots in your firm lost it all. If you are so talented, you SHOULD leave your job and go to a more competent firm to work. Why would you even stay at a firm that is clearly full of idiots? And despite what wall st believes, if bonuses were really “part” of your compensation, then all those people who have been laid off should have gotten a portion of their bonuses. but many (most?) did not. i don’t care how many hours a banker works, if they contributed to the losses (from current or past deals) they shouldn’t get a bonus.

Comment by anon - January 30, 2009 at 6:48 pm

i agree with Indy - most bankers for the past year have been sitting around doing face time into the wee hours of the night because there’s no deal flow. so you still think you deserve bonuses for all the hours you put in? please. if you’re not happy with the conditions of having the gov’t prop up your firm, go work somewhere else.

Comment by anon - January 30, 2009 at 6:51 pm

If the taxpayers are going to prop up wall street through tarp, asset guarantees, etc., then we should be treated as majority shareholders with a real voice at the B.o.D. of each needy firm. The issue isn’t about whether any bonuses should be paid, it’s about the total lack of governance on these firms by their (now) major capital savior - the US taxpayer! Firms that don’t need US govt help can pay what they please as they have done in the past.

Comment by Scarborough investor - January 30, 2009 at 7:03 pm

Now Indy - why don’t you work hard so your kids can sell hot peppers on the street. Is the guy who is selling peppers on the street also have the same sort of pedigree and background as the bankers you call car salesman? If bankers are so useless, why do you deal with them? Oh yes, I get it, because it makes you feel more important bossing around overqualified people who make 5x more than you while knowing that you never got there, that you could never become that car salesman because, “drum roll” you were not as smart.

Good luck selling hot peppers.

Comment by INDY - GIVE ME A BREAK! - January 30, 2009 at 7:06 pm

there should be class action lawsuits against all of the fancy universities that taught these fools all they know. What a waste of talent and time…we need to hit the reset to this game. SOON

Comment by shawn - January 30, 2009 at 7:12 pm

“Is the guy who is selling peppers on the street also have the same sort of pedigree and background as the bankers you call car salesman?”

Are you kidding?! pedigree? What kind of pedigree do you need to bring down your company? Can I get that at Harvard?
At least the guy selling peppers is actually selling something that exists.

Comment by canal street - January 30, 2009 at 7:13 pm

Of course the bonuses are outrqageous. But no more so than the salaries paid to professional atheletes. They all need to have their heads on pikes.

Comment by Doug - January 30, 2009 at 7:14 pm

I agree - you don’t need a Harvard degree to understand that if you spend beyond your means, you will go bust.

Oh yes, Canal Street, if you didn’t realize, you don’t have to make socks and underwear to actually be contributing. You don’t even understand what investment banking is so why don’t you just shut up.

Comment by canal street - January 30, 2009 at 7:27 pm

And a welfare mom in CA, with six kids already, just had octuplets. It just gets crazier by the day!

Comment by JT - January 30, 2009 at 7:34 pm

I’ve said all along that the rescue package was made too easy and attractive. That’s why so many firms are lining up looking for their share.

I would have attached painful strings like dividend suspensions and compensation limits. My rescue package would tell firms in trouble, “It’s here if you really need it, but you won’t like it. If you have any other alternative, try that first.”

Comment by Tom in FL - January 30, 2009 at 7:39 pm

Sorry you never made it to the fancy school - while you were drinking with your buddies chasing girls, there were some who put their heads down and worked hard. In fact, you probably didn’t even know what a fancy school was until you noticed that the geeks who put their heads down were actually doing better than you. Stop taking out your jealous fits and why don’t you get a degree

Comment by Comment by shawn - January 30, 2009 at 7:12 pm - January 30, 2009 at 7:39 pm

what do bankers make? can you eat it?
touch it?
Do they make things that will defend a country in time of war? (they may start wars though)

no - they make money off of moving money, which is the most criminal of all crimes. Hang ‘em high!

I envision that Gotham will soon need to be fenced off and made into one giant prison with no way out…wait someone already made a movie with that idea.

Comment by Anonymous - January 30, 2009 at 8:11 pm

oh btw my unfancy university was rated 112 on the recent USNews list….and what is wrong with women and beer?

-If you company gets welfare you get no bonus- it should be that simple for you to understand.

Comment by shawn - January 30, 2009 at 8:56 pm