Wall Street bonusfest 2008: 6th largest haul on record
Posted
Jan 29 2009, 06:06 AM
by
Bernhard Warner and Matthew Yeomans
Rating:
This post comes from partner site The Big Money.
Investors may not be happy with the performance of bank executives and their top employees these days, but, apparently, compensation committees are satisfied.
The New York Times kicks off its business coverage today with some numbers that are hard to swallow. New York's financial institutions paid out a gaudy $18.4 billion in bonuses in 2008, "the sixth-largest haul on record," it reports.
Citing figures released by the New York State comptroller, the NYT calculates, "Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high."
Meanwhile, the bonus largesse Merrill Lynch bosses distributed in the firm's dying days continues to dog former CEO John Thain. The Wall Street Journal reports New York Attorney General Andrew Cuomo will expand his probe into the Merrill bonus payout scheme, zeroing in on Thain to determine if directors and shareholders were misled about the giant losses looming at the Wall Street firm.
The newspaper adds that Bank of America (BAC) CEO Kenneth Lewis is likely to be questioned as well. "Looking at Bank of America, if they did a bad deal and didn't tell anyone, it not only hurt shareholders, it hurt taxpayers because of the government funding that has been extended to the bank," the WSJ's source-in-the-know says.
With the lopsided bonus payouts, the still-frozen credit markets, the $700 billion taxpayer lifeline going fast, and fresh reports of mounting losses at banks, it's not surprising then that BusinessWeek concludes that "the bank bailout is broken." A banking analyst with Keefe, Bruyette & Woods tells the magazine, "Money is moving throughout the system, but there is increasing recognition that these institutions don't have enough capital to withstand the losses from all the crazy loans they have."
Fear not: Newly appointed Treasury Secretary Timothy Geithner says he has a better, more comprehensive plan on the drawing board to “repair the financial system,” the NYT writes. Geithner wasn't specific, but, he did rule out nationalizing struggling banks.
And what about this "bad bank" idea that collects all the toxic assets out there to give these firms some breathing room? The newspaper says top Obama administration officials have been floating the idea by Wall Street execs to determine the feasibility. It wouldn't come cheap, though. A second bank bailout plan could cost up to $2 trillion, the WSJ estimates.
The "bad bank" discussion sent shares higher on Wednesday, particularly for (no surprise here) bank stocks. Also on Wednesday, the Obama administration's $819 billion stimulus plan passed in the House of Representatives, as expected. In the words of the WSJ, it's modeled as "a recession-fighting effort that would extend the reach of the federal government across the U.S. economy by reshaping policy on energy, education, health care and social programs."
A similar $900 billion stimulus bill awaits a Senate vote next week. Whichever one eventually makes it to the president's desk will prove costly. "Either bill, if enacted, would push the federal debt toward levels not seen since the second World War," the newspaper writes.
The Federal Reserve was busy on Wednesday, too—even if it voted to do nothing. According to the Washington Post, the Fed left the benchmark rate unchanged at virtually zero.
With its main recession-fighting weapon spent, the Fed announced some unconventional moves: The Federal Open Market Committee will buy up more mortgage-backed securities, start buying long-term government bonds, and may take further steps to make loans more widely available, the newspaper writes. Elsewhere in Washington, "federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation's credit unions -- a maneuver that shows how the economic crisis continues to ripple across the U.S.," the WSJ writes.
Perhaps not all the banks were blinkered to risk. The NYT reports that some European investors are asking questions about why JPMorgan Chase started pulling $250 million out of Bernard Madoff's Ponzi scheme last fall. While many financial institutions have been left red-faced by their investments with Madoff, JPMorgan says its exposure is "pretty close to zero."
As the NYT writes: "The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless." So, who knew what within Madoff's firm? That's what the feds want to know, and today the WSJ reports that several core employees have received subpoenas from regulators seeking documents about their dealings with defrauded investors.
This group was heavily involved in client activity, including setting up new accounts, monitoring client balances, and providing clients with updates on where their portfolio of investments were spread. While none has been accused of any wrongdoing, "investigators don't believe Mr. Madoff committed the fraud alone," the WSJ writes.
Bad news out of Asia this morning. Sony (SNE) and Toshiba (TOSBF) both posted losses for the last quarter, and Nintendo (NTDOF) issued a profit warning, the NYT reports. Sony’s loss was nearly 18 billion yen -- an astounding 95% drop from the year before.
Back in Europe, even Shell is feeling the pinch. It posted its biggest drop in quarterly profits in a decade, though it still managed to rake in $4.8 billion in the last quarter, the Guardian reports. Oh, that Starbucks (SBUX) had such breathing room. It missed the Street's expectations on fourth-quarter profit and sales, and the coffee giant announced 6,700 new job cuts and the closure of 300 stores. In one of the more bizarre cost-cutting moves, Starbucks says it will stop brewing pots of decaf after noon.
Finally, the downturn has clipped the wings of the once-soaring corporate-jet industry. The NYT reports that many companies are canceling their private-jet orders, as they are increasingly "becoming symbols of high-flying excess." The latest company to trim its corporate-jet fleet? You guessed it: Starbucks.
This post was written by Bernhard Warner and Matther Yeomans of The Big Money.
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