NYAG Warns Nine Banks About Bonus Payment

Did I not just call this yesterday? (not specifically the AG, but that news leak being the worst thing that could happen).

Unfortunately, it doesn't stop with this.

Henry Waxman (Chairman, Committee on Oversight and Government Reform) is proposing to look into compensation from 2006 forward for all financial services industry employees that received $500,000 plus in annual compensation. What becomes of this investigation, who knows. Once the Feds get involved, they don't easily go away.

and so it begins.

"Unfortunately"?

Absolutely, positively not "unfortunately." If people were paid bonuses for taking excessive risk or for fraudulent actions (AIG comes to mind) and the taxpayer is forced to bail out their company (as is happening), then clawback is in order.

This is a New World Order for the financial industry, and it's about time. For years - since the demise of Glass Steagal - they've made their money by creating bubbles and popping them, only this time it's the taxpayer who's on the hook. It's got to stop once and for all.

It gets better:

New York Demands Bonus Pay Data From JPMorgan, Citi (Update2)

By Karen Freifeld

Oct. 29 (Bloomberg) -- New York Attorney General Andrew Cuomo sent letters to JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and six other banks that received taxpayer bailout funds, demanding bonus information on upper management.

Cuomo asked for a detailed accounting of expected payments to top executives in the ``upcoming bonus season,'' including information on the expected bonus pool for this year, according to a copy of the letters sent today. He requested information on bonuses from before and after the banks knew they would receive funds from the federal Troubled Asset Relief Program.

``In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation,'' Cuomo wrote.

http://www.bloomberg.com/apps/news?pid=20601087&sid=agwlWbgOfRh4&refer=home

you may be right, but much like b-frank's call for a moratorium on bonuses, i highly doubt these two actions will incrementally change anything.

"i highly doubt these two actions will incrementally change anything."

Don't count on that in the re-regulated environment we're entering into. I believe you will see that bonuses will be adjusted for risk.

agreed, compensation will need to come down.. but keep in mind that these are elected officials in an election year making populist hay about big/bad wall street. my guess is that the 250k+ people in ibank make somewhere in the order of 100-150base.. take away their bonuses, and they will go elsewhere. you dont need to work 80hrs/wk to make 100k when u could be working 40hrs/wk. losing your top tier of legitimate producers will only accelerate the demise of the banks that the american taxpayer has "invested" $200bn in...

While I don't know enough about government policy to really evaluate whether something like this (or Barney's actions) will have "teeth", there certainly is enough support from the populace.

"take away their bonuses, and they will go elsewhere."

I've heard this "threat" before, but where exactly will they go?

Mr. steve: I may be wrong but last time I checked, we lived in a country of laws. If someone made their money illegally, by all means prosecute them and clean their clocks. BTW, I certainly DO NOT support bailing anyone out with tax payer dollars and I totally disagree with the recent steps by the Feds to use tax-payer funds to sustain/reward failure. I believe we are now up to an absurd $2 trillion.

You might place partial responsibility for the asset/commodity/.com bubbles on US Federal Reserve policy and that of Tokyo. The Yen carry trade has had much to do with global inflated asset prices (which eventually bust) as has Greenspan's past monetary policy of negative real interest rates. The Feds obviously have not learned from their past mistakes as here we are again attempting to reflate asset values by flooding the economy with 1% money and bailing-out everyone & their pets.

Hmmm. On the flip side, a high persistant wall street compensation means more tax dollars that would help reduce the NYC and NYS budget deficits correct?

i hear you.. but the rhethoric is not directed the midlevel masses.. the "producing" front-office vp and above employees have the most to lose from this. i find it hard to believe that none of these guys - and its a small minority making 250k+ - will be able to find a job somewhere else if they were faced with a 50-90% paycut.

"Hmmm. On the flip side, a high persistant wall street compensation means more tax dollars that would help reduce the NYC and NYS budget deficits correct?"

Hmmmm... they should spend $30 bil of government money to get back $1.5 bil in state and $1.5 bil in federal revenue... not a lot of logic to that.

Figure the fed will be making up some city/state shortfalls anyway.

Makes NO sense to split that with the bankers.

If they want to help the city, pay the city some of its money back.

I'm not looking for logic. Just a silver lining. ;)

Ah, so you're the guy who buys stuff you don't want for the miles...

;-)

"take away their bonuses, and they will go elsewhere."

TheFed is right: exactly where will they go? In no other industry in the world do so many people make so much money for taking so much risk. And as we're seeing, Citibank is setting aside $108 billion so far this year for bonuses, after receiving a bailout of $125 billion.

What is making the money is not sound finance like Warren Buffett. What is making money is financial engineering, which is for the most part unneeded. It creates asset bubble after asset bubble.

Unfortunately, serge07, if we didn't bail out the banks we would be faced with another Great Depression. There was no choice. It would have taken down the world. What we need to do now is set up a system where this never happens again, and one of the basic tenets of that system has to be normal compensation levels for normal risk levels, with no 40x leverage and massive bets that a market will go one way or another. It is gambling, pure and simple.

Please do keep in mind that a lot of this from Cuomo and Frank is political posturing. I was in Boston this weekend visiting friends and Frank has commercials running where he equate Wall Street to a circus and says that it's time to clean up the circus act of Wall Street. Cuomo is a publicity hound as much as the next guy, too, so they are trying to milk this for all it's worth.

Government regulation of bonuses is a very slippery slope that they will have a hard time getting involved in. I am not talking about a few high level executives responsible for bad decisions. I am talking about rank-and-file people in the -banks who really did earn their bonuses.

If I had to guess right now, I would say this is mostly bark.

> I am not talking about a few high level executives responsible for bad decisions. I am talking about
> rank-and-file people in the -banks who really did earn their bonuses.

I don't buy at all that this was a "workers were doing good work, but bosses screwed it up" logic.
EVERYONE profitable from the bs. The folks that created it, sold it, traded it, whatever.

It might not have been the fault of the junior guy that things tanked, but he made waaaaay more than he should have because he happened to be on the right team at the time.

Its like saying the folks who day traded tech stocks "really did earn".

They didn't. Their crumbs were bigger because there was a bubble and bullshit.. That wasn't because of their skill.

NYC - Sorry, I don't think I was clear. I meant that there are a number of people working in these firms that did good work and made money for the firm. Take away how you feel about them. They did their jobs and earned their bonuses and other areas of the firm brought the numbers down (for example). Why should these people not get their bonuses? Personally, I don't have a problem with that. I also think that it would be extremely difficult for the government to go through all of the numbers and pinpoint what is going where. I am more concerned with how they are going to dole out this $700 billion. They don;t have the best track-record for acting "above board" either.

This is just too much involvement in the running of the business than I am comfortable with. I am all for regulation and I am all for the CEO's not getting their $60 million bonuses, but I have a hard time with Barney Frank sitting down and deciding who should get what for a bonus.

"They did their jobs and earned their bonuses and other areas of the firm brought the numbers down (for example)."

They "earned their bonuses" in the short-term by taking long-term risks, which were (apparently) excessive and not well thought out. That is the problem.

"I have a hard time with Barney Frank sitting down and deciding who should get what for a bonus."

I don't think you'll find that will happen. What will happen is that regulations will be established for banks that prevent them from taking the risks that led to the bonuses - excessive leverage, excessive counterparty, country, currency, economic sector risks.

Those same people benefitted from the bullshit, too. They got bigger bonuses than they would have if not for the bullshit, even if they weren't in the bullshit areas, plain and simple. M&A bonuses are bigger than they would be if trading has a banner year, and vice versa. Not to mention, there were few areas of the banks that didn't benefit from the bs.

In short, FEW earned what they were paid. Wall Street has true earners, but it has in the last few years become the biggest collection of overpaid glorified middle managers who wouldn't have made anything if not for the leverage.

NYC - that is a bit of a generalized overstatement, don't you think?

Why don't we take it one step further and say that any vendors/businesses that dealt with the i-banks over the last few years and made money should be fined to punish them because they also profited from the reckless i-banks?

An absurd suggestion, but not as far down that slippery slope as you think.

> NYC - that is a bit of a generalized overstatement, don't you think?

No, I don't think so at all.

"Why don't we take it one step further and say that any vendors/businesses that dealt with the i-banks over the last few years and made money should be fined to punish them because they also profited from the reckless i-banks?"

We don't need to punish them, their businesses are now seeing huge drops in revenue. Thats how the market works. If they built businesses based on that revenue, then they now have issues.

If the people in question profited from the runup, they need to suffer with the downfall. If they didn't want to be part of a larger company, then they should have gone to smaller firms.

There are tons of M&A boutiques.

But, if they sought to benefit from the earning power of the larger organization, and have their boats floated with the rising tide, then they can't complain when the tide recedes.

>I've heard this "threat" before, but where exactly will they go?<

London was a popular possible hot spot. Best of luck to them now that their major financial institutions have been basically nationalized. Italy is contemplating getting rid of hedge funds in the country so I guess that idea may be out of the question.:)

"London was a popular possible hot spot."

Have you see what London's property market is doing?

FYI the re-regulation will be international - there will be nowhere to go.

NYC - so why don't we just cut off their heads and put them on stakes? You are insinuating that every single person in an i-bank was invloved with this and that is just not the case.

Look, if you work in finance, you have chosen to work in an industry where your pay is going to be extremely volatile (I work in finance too). That's the whole point of bonuses. You get a bigger bonus when 1) you did good work and 2) that work resulted in the company doing better. Both factors have to be true. In downturns, everyone expects their bonuses to be cut. It might suck for you that year, but hopefully, you saved for a rainy day. If you didn't, you were delusional about the industry you're in and maybe this will teach you a lesson. The bailout should not affect how the company views "how well it did" and therefore should not affect bonuses. If companies do that, then they are misrepresenting what this money is for. It is not intended to go blindly into the profit column. It is money to be used for specific purposes, and the givers of that money can set the terms as they like. If they decide it's not for bonus considerations, than its not. Take it or leave it.

"You are insinuating that every single person in an i-bank was invloved with this and that is just not the case."

No. You are inferring that.

"You get a bigger bonus when 1) you did good work and 2) that work resulted in the company doing better."

It depends on the time horizon. Doing well short-term when it collapses in the medium-term is not "doing well." It's getting a bonus, taking the money, and sticking somebody else with the bill.

"The bailout should not affect how the company views "how well it did" and therefore should not affect bonuses."

That's novel. AKA my ass. If you take excessive risk that works in the short-term, pay yourself a bonus, and then need to be bailed out, your bonus should a) be taken back, or b) never have been paid in the first place. That's the problem with the arrogance of Wall Street - they think they "deserve" these bonuses, even when they've stuck society with the bill and practically bankrupt the world economy.

"and the givers of that money can set the terms as they like"

EXACTLY! And we taxpayers have just become the "givers of that money" and we can set the terms as we like. And the terms we like are that if you assume risk that brings down the world economy, that does not deserve a bonus.

What's so hard about that?

>Have you see what London's property market is doing?<

Sure. I've mentioned the plummeting UK commercial & residential values here before but there wasn't much interest in the subject. Folks forget (or may not realize) that Manhattan & London RE markets have historically moved in the same direction. Other RE markets in the EU & Eastern Europe are also in a world of hurt but who's counting. :)

u can't take the money away from the them...they own the money. they are just giving it back to themselves. goldman (treasury/paulson) to goldman (wallstreet...). i'm sorry but that is about as straightforward as this gets. frank & obama (or palin) or kermit can do what they want.

the banks have controlled wealth for years. true, this years offensive lineman from tennessee may not get $500K 3 yrs out of college for selling junk. maybe ur math phd quants from MIT will disappear for a few years (learning for the 20th time that equilibrium never arrives when u most need it).

but yalie's & exeters will do just fine. and they'll do whatever it takes to keep that control. whether that means controlling the businesses (skimming off of ur back) to controlling your retirement (skimming ~10-20% of whatever leftover savings u do have, if lucky) to controlling your taxes (~50%). u get 1/3 of what they give u which is probably half of what u deserve....................

"u can't take the money away from the them...they own the money."

Today. Tomorrow the law will be different.

"they'll do whatever it takes to keep that control."

Yup. Including murder.

stevejhx
about 1 hour ago
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"u can't take the money away from the them...they own the money."

Today. Tomorrow the law will be different.

"they'll do whatever it takes to keep that control."

Yup. Including murder.

--

HOLY CRAP, what a paranoid

murder?

Very interesting suggestion Mr. Steven Hanley, very interesting suggestion.

Is there something some of us should know about you?

I'm confused. Wasn't Wishhouse agreeing with Steve that there should be oversight from the people giving the money (the government,) and that bankers shouldn't get bonuses this year?

"And as we're seeing, Citibank is setting aside $108 billion so far this year for bonuses, after receiving a bailout of $125 billion."

This can't be accurate. I believe the 2007 bonus pool for the whole city was $38B, second highest ever after 2006.

Yes, and no one caught the irony in my statement.

> NYC - so why don't we just cut off their heads and put them on stakes? You are insinuating that
> every single person in an i-bank was invloved with this and that is just not the case.

No, I did not at all. If you think I did, please reread my posts.

> u can't take the money away from the them...they own the money. they are just giving it back to
> themselves

Actually, if its in restricted stock, you can absolutely get some of that back. Its called dilution. Hell, all the government has to do is buy more shares at below market prices.

Of course Wall Street wants to keep all the money. Look how fast MS, GS and the others switched over to bank holding companies when they realized the age of high risk were over and the days of "helicopter money" from the Treasury were here.

As for the staggering comp figures, part of the bailout deal is that execs who have contracts in place aren't subject to cap caps. So expect all of the big guys, the $5MM plus players to be under renewable contract and out of the reach of the AG. Who gets screwed? The $500K-$5MM guys. Watch them get thrown to the lions.

Where will they (us) go? We'll leave the broker/dealer we work at and move to a hedge fund. If Barney Frank wants to regulate hedge funds, they'll just move offshore to a tax haven.

"they'll just move offshore to a tax haven"

And no Americans will be allowed to invest in them. Easy enough.

> The $500K-$5MM guys. Watch them get thrown to the lions.

And who are the guys who drive most of the apartment sales. I'll admit I'm not in the market for a $25 mil place. But the more standard upper east 2 bedroom....

"Where will they (us) go? We'll leave the broker/dealer we work at and move to a hedge fund"

Good luck getting a job at a hedge fund right now. So, so many existing ones are way below their high water mark, and won't pay carry for years (or will just give up and fold). And if you're planning to start a new one, good luck raising money.

Not commenting on anything else in this thread (complex topics, and I want to stay away from politics), but the thought that everyone at ibanks can just leave and get jobs at hedge funds is naive.

I didn't expect my comment to mean everyone, just people that have books of business (brokers) that can form their own company or top traders that can get their best institutional clients to give them $. Top guys have stayed at the banks because of the comp, and if you take that away, the option of going on your own/overseas increases. If you worked in M&A, you're screwed, unless you can get a client you cover to get you a job. I don't have the link right now, but there was NYTimes article about this happening already with brokers.

> The $500K-$5MM guys. Watch them get thrown to the lions.

That would also be fine with me.......too many people in this world work just as hard and are just as dedicated to their work and make nowhere close to $500K-$5MM, so if those fat cats need to suffer too, then oh well. Am I really supposed to feel so for the "little" guy who makes a mere half-million dollars a year. Oh my, the poor working stiff is getting "screwed"! Please spare me.