Bonus Bounce

This was perhaps the most useless article I have ever read in the NY Times RE section. What a piece of fluff, less substance than a teaspoon of white sugar...

This past year was very unusual. A few large banks made a killing due to zero Fed Funds rate wide bid-ask spreads and rising asset prices. Nobody expects a repeat of this in 2010 or 2011. These NY Times stories are little more than broker fed advertising. The real news is in other sections. Wall Street bonus spending is not likely to live up to this hype. If you got a good bonus you save it. Too many people on the street just got through a period of under and/or unemployment and some are still in that category.

"A three-bedroom condo at 1 Morton Square in the West Village went on the market for $2.75 million in early January. It was snapped up in just four days, for more than the asking price. There were three all-cash offers — from a Goldman Sachs banker, from a banker at another Wall Street firm, and from someone in “new media,” said Darren Sukenik, the listing broker and a managing director at Prudential Douglas Elliman. The banker from the other Wall Street firm prevailed."

Oddly, that listing doesn't even show as in-contract yet, or even "offer accepted", let alone closed. That's the best anecdote Sukenik has?

West81st, My take is he's long listings at 1 Morton Square(four on his site) and this is a sales pitch to contact him so he can earn some commission. I doubt he the 2.75 mentioned in the story.

somebody should buy sukenik a skirt for his cheerleading career. some fetching matching pom poms and a gaily colored megaphone to maximize the impact.

UD, on his site, cites the increase in open house traffic for the East Ninth Street reference in the NY Times article as his basis for his belief in the "bonus bounce" but nowhere in the NYT article do they mention whether or not there was a change in listing price when the apt was relisted in January.

Anybody know how to find this elusive East Ninth Street listing on SE to either confirm or deny the explanation for the supposed burst of activity and interest? My bet would be that they dropped the price when they relisted, which generated greater interest in the Open House rather than the alleged "bonus bounce." Of course, both could be true and it's a question of degree. But I am curious about listing price when no one was interested last year, and the sudden interest since relisting.

Condos on E. 9th are: 748,631,325,214,63 condop,30 condop,

I think thats all of them, have fun I'm off to work...

Keith (Broker)

http://nycrentrant.blogspot.com/

what is clear from the article is that many bankers are hoping for significant cash bonuses and are looking around. unfortunately, there will be reality setting in when most, or at least a significant amount, will come in a form of restricted stock. the article mentions one person backing out of the deal. all of this extra activity can mean almost nothing in the long run.

There are many ways to monetize restricted stock...

I don't think you can monetize restricted stock that hasn't vested...can you? Afterall, if you leave the company before the three years, you lose it. Once it vests, but is still restricted in some fashion, then I suppose you could monetize it. But the point is that until vested...it ain't really money.

here you go..

http://www.jcbraddock.com/book/chapter13.html

40 East 9th, 14L
STREETEASY HISTORY
01/17/2007
Previous Sale recorded for $925,000.
06/04/2009
Listed by Prudential Elliman at $1,195,000.
07/25/2009
Price decreased by 8% to $1,095,000.
12/01/2009
Listing is no longer available.
12/30/2009
Re-listed by Prudential Elliman.
01/06/2010
Price decreased by 4% to $1,049,000.
01/26/2010
Listing entered contract.

It is correct that there may be ways to monetize "restricted" stock. However, I thought this thread was about the restricted packages announced in the media, which in many cases do not vest for a few years. If it hasn't vested yet, you do not have only a contingent right to it, so I don't logically see how you could monetize it. You could choose to attempt to hedge the risk of the contingent value of the unvested stock, but that could be risky if for some reason the stock ultimately didn't vest (you decide to leave the company). I guess the basic point is that the wealth effect of a bonus in unvested stock probably is less than cash, and will have less impact on the re market.

you have only a contingent right until vested...i meant to say

@jason. Don't have time to reread, but I think they mention it is a "condo" on East 9th street.

The train has left the station...

Jason has it right, story had condo/co-op wrong. The 40 E 9th matches the dates and numbers. It came up also at http://streeteasy.com/nyc/talk/discussion/18382-bidding-war-while-in-contract

jimeasy. I agree the recipient would have to be vested. I don't recall any press on whether Wall Street was allowing up front vesting. The policies of the individual companies also come into play.

"somebody should buy sukenik a skirt for his cheerleading career. some fetching matching pom poms and a gaily colored megaphone to maximize the impact."

LOL. And a flower for his hair. Oh, and he'll need a pad, too. Maxi. He sounds like a desperate young woman...

CNBC was reporting executives getting unvested, that vest after three years. Obviously, that makes sense. Such policies have been used at times over the years even for many lower level employees so it is likely pretty common right now.

you are correct. If Blankfein and Dimon are representative, they won't be able to monetize for 12-24 months.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7170394/Goldman-Sachs-chief-executive-Lloyd-Blankfein-awarded-9m-bonus.html

Even low level scum like me received unvested stock back in some bad years...i would bet there is a lot of that going on now.

Back in 05 some stock immiedately vested...

http://www.foxnews.com/story/0,2933,178976,00.html
Paulson, who is 59, was also granted stock options on 220,392 shares valued by the firm at about $7.3 million, with 40 percent vesting immediately. Paulson, who received a salary of $600,000 and no cash bonus this year, now holds 3.89 million shares.

Overall, Paulson's compensation rose more than 21 percent from last year.

http://www.efinancialnews.com/assetmanagement/pensionfunds/content/1056432628
Some banks are vesting up front..

However, Financial News disclosed last week that some banks are taking actions that the industry’s critics might question. Bank of America Merrill Lynch and Citigroup are granting a proportion of the shares component of bonuses in stock that vests over the next few months – and they are unlikely to be alone.

Of course...geez..there are infinite variations...The point is, again, I suspect based on media reports and the reports on executives that a lot of this stuff, probably most, is NOT vesting NOW...and therefore will have much more limited impact on wealth effect of re purchasers.. Whatever, are you disagreeing with that assessment>

Jim, not at all. There was another poster who got a little smug and arrogant and took the disagreement to a place it didn't need to go. I suspect the vesting practices vary by firm.

C- level executives ABSOLUTELY cannot monetize any of their options or restricted stock without triggering an SEC filing. I have done investor relations for 13 years, and this rule DEFINITELY came in effect after so many dot-com CEOs swaped out of option packages, took loans out against them or otherwise were no longer "aligned" themselves with shareholders.

Rank-and file restricted equity holders can do so with the permission of their compliance departments with the help of a high-net worth broker or private banker, but this is significantly harder in the post-Lehman era.

This is a topic I am certain I know 100X more than riversider or anyone else on these boards.

Depending on the level of seniority and depending on the specific institution, folks have received bonuses that generally range from 75%-25% cash. [the youngest post-MBA bankers, Associates, being near the 75% cash, 50% cash for VPs, and only 25% cash for 8-10yr+ bankers (Directors and higher). The non-cash bonus portion is then divided between 2 categories of stock, roughly 50/50: 1) restricted stock - meaning it is vested & they own it, but they can not actually sell it for 6-18 months, and 2) unvested stock - meaning they do not yet own it, and it will vest in equal increments annually over the course of 3-4 yrs. Regardless of the unvested portion, this is still a pretty big chunk of change. My friends who are ~31 and VPs have several hundred thousands of dollars of cash from their base + bonus to spend on real estate, and many of them are eager to do so... hence the very real current bonus bump in sales.

Jason is probably right about corportate title execs.. but it's clearly something that gets done, and not arguably improper in some/all of its forms.

http://www.jpmorgan.com/pages/jpmorgan/private_banking/corporate_executives/access_liquidity

Monetizing your restricted shares
If you don't want to sell your restricted stock at this time, you can monetize its value through other means.

The benefit of experience
Whether you decide to sell or monetize your shares, J.P. Morgan provides a combination of sales and trading experience, market knowledge and legal insight. Few other firms, if any, have comparable resources for taking full advantage of any restricted stock or options you hold.

Contact a J.P. Morgan Advisor to learn more about how J.P. Morgan can work with you to access the full value of your wealth. Alternatively, you may contact any J.P. Morgan office.

I meant to say is arguably improper in some /all of its forms..

"Contact a J.P. Morgan Advisor to learn more about how J.P. Morgan can work with you to access the full value of your wealth."

More like "Contact a J.P. Morgan advisor so J.P. Morgan can learn more about how to access the full value of your wealth."

http://www.youtube.com/watch?v=VhwRyiAF-7I

Jason said "C- level executives ABSOLUTELY cannot monetize any of their options or restricted stock without triggering an SEC filing. I have done investor relations for 13 years".

Of course it is, Jason. And has been for nearly a decade. People like yourself whose jobs require that they be knowledgeable about such things have known this for a long, long time. Others on this board, who have had a lot of career success and have been the recipient of such stock grants, know it too.

Riversider and his ilk are neither...

Thank you for the information.
Have a nice day.

Have a nice day, yourself. Jagoff.

"somebody should buy sukenik a skirt for his cheerleading career. some fetching matching pom poms and a gaily colored megaphone to maximize the impact."

lmao

"folks have received bonuses that generally range from 75%-25% cash. [the youngest post-MBA bankers, Associates, being near the 75% cash, 50% cash for VPs, and only 25% cash for 8-10yr+ bankers (Directors and higher)."

so overall, there might be a pick up in RE activity at the entry level, not at the highest (still important though)

Funny, I never wear my banker nametag to open houses. How do they know that 40% of the people that showed up were bankers? Whatever. Anyhow, we've been told that a larger part of our bonuses will be in stock. Many employers, banks included, design lending programs to lend against their own employee's restricted stock. Programs are generally for very senior employees only.

"Many employers, banks included, design lending programs to lend against their own employee's restricted stock. Programs are generally for very senior employees only."

More companies restrict loans to senior-most executives...

By restrict, I mean prohibit: Section 16 officers cant take loans at many (most?) firms, if they are publicly traded.

Leaves the door open to a great many senior bankers and traders, some of which may work for firms who permit this.

"some of which may work for firms who permit this."

May. And if my grandmother grows wheels, she may be a bicycle...

BTW, my firm has a policy like this, but it is VERY restrictive, and so very few traders have outstanding a nominal amount of loans (a few million, for the whole firm).

What is your firm's policy, Riversider? Oh, I forgot: You're a florist...

Sorry to steer this back to the article, but I didn't take from this that bonuses were going to have a big effect on real estate sales. Outside of a couple of self-serving broker comments, I honestly didn't think the reporter overly misrepresented the market, which is there's a pulse, but that's about it. Pretty cool-looking space the one Wall Streeter bought.

The Jersey City building mentioned on the first page (The Beacon) is in an absolute ghetto. It is the type of area that when you drive through, you check to make sure your doors are locked and windows are rolled up. Total sewer.

Nothing like using a buyer in Jersey City to demonstrate that the Manhattan market is heating up. If this is the best they've got, then it is pretty weak.

I will agree with riversider that highly paid workers in any industry can and do use private bankers and high-net-worth stock brokers to monetize restricted stock and equity. Google allowed ALL employees to do so via Morgan Stanley - which created OTC derivatives based on their vested stock options (derivatives of derivatives, yes.) Other high tech companies have done the same - allowing underwater option holders to unlock the value of the volatility in their otherwise worthless options. MS and others earn a fee, of course. Basically makes employee options = listed options.

Also, with either options or restricted shares, you can barrow against them in an old-style loan, though as I say much harder post-Lehman.

You can enter into a total return equtiy swap or other type of swap, whereby you agree to sell your shares when vested and the bank asks you to and turn over %100 of the proceeds to the bank, in return you receive some up-front amount or possibly a steady amount (like LIBOR + some basis points.)

The bank will generally pool thousands of such contracts together, often with restricted shares from multiple companies and sometimes in multiple industries, and find a counterparty who wants exposure to equity-market returns in exchange for paying some amount or fixed income.

My point was that C-levels and board members are barred without disclosing it. however, rank and file employees can. Is it proper? Its not ILLEGAL, but it certainly defeats the purpose of "alinging" their interst with thsoe of the firm or shareholders, or long-term results.

That having been said, such scenarios personally bankrupted plenty of Enron, Worldcom, Bear, Lehman, and AIG employees, not to mention those of plain-old deflated bubble companies like Yahoo! or Countrywide, which is why they are both very risky to enter into in some cases, and why they are more expensive for the employees these days.

But they certainly do happen. I myself have set up private banking meetings on the topic for our better-paid employees.

jasonkyle,

Kudos! Many, many thanks for answering my question. Your efforts are much appreciated! Sorry it took so long to respond and thank you.

I'd be curious to see the final contract price. I'm betting it came in below $1M so as to avoid the mansion tax. Data on the Miller Samuels site states the 4Q09 listing discount at 10%, so I'm guessing that the drop in price when relisted that you found meant buyers took more interest once a 10% lowball would take the price under $1 M and the mansion tax.

So, it would seem that proper pricing (and that means lower pricing!) has more to do with the traffic and the contract than the bonus bounce. And note that the NYT never produced any evidence to show that the interest was bonus related...

no problem sisyphean. oh the times real estate section...

i like how folks pretend its a news section.

Hint, its not... it gets aligned with the classifieds and auto section. Even the editor has admitted its not news.