It’s got stiff competition, but Merrill Lynch may have just wrapped up the prize for the investment bank that best exemplifies Gordon Gekko’s famed articulation of the Wall Street creed: “Greed is good.”
The Financial Times reports (sub. req.) today that in early December, Merrill, which months earlier had agreed to be bought — rescued, really — by Bank of America, decided to pay out $3-4 billions in bonuses.
The bonuses were handed out on an accelerated schedule — at least a month earlier than in previous years. And they were agreed to just days before Bank of America, realizing how much in toxic assets Merrill had on its books, went to the federal government asking for more taxpayer money to help it digest Merrill — money that was eventually forthcoming.
One equity analyst told MarketWatch that the move, apparently initiated by then-Merrill CEO John Thain, was “simply outrageous and one of the more extreme examples of poor corporate governance we can think of.”
You also might remember that Thain — who today resigned as a Bank of America exec, amid criticism — had originally asked the firm’s compensation committee for a $10 million bonus for himself, as part of that round of payouts, though the committee at least had the good sense to decline the request.
And the Wall Street Journal now reports that New York Attorney General Andrew Cuomo is investigating the payouts — part of a broader probe of executive compensation among Wall Street firms.
Just to get a clear sense of how this all went down, and what a boondoggle this looks to have been for Merrill, it’s worth looking at a timeline of events:
- 9/14/08: Bank of America buys Merrill. Over the previous four quarters, Merrill had posted losses of more than $17 billion.
- 10/14/08: Bank of America gets $25 billion in bailout funds, largely in order to help it take on Merrill’s losses.
- Fall 08: A proposal is made to Merrill’s compensation committee that Thain receive a $10 million bonus.
- 12/05/08 - Merrill and Bank of America shareholders vote to approve the takeover.
- 12/08/08 - Merrill’s compensation committee declines to approve the proposal on Thain’s bonus, but nonetheless approves payouts to staff totaling $3-4 billion.
- Days later: Bank of America learns that Merrill’s fourth-quarter losses were greater than expected. B of A begins lobbying the federal government for more TARP money to ease the takeover.
- 12/29/08 - Merrill pays bonuses paid, at least a month ahead of the usual schedule.
- 1/16/09 Treasury says it will give Bank of America another $20 billion in TARP money, to help it absorb the larger-than-expected Merrill losses.
- 1/16/09: Merrill reports a $15.3 billion fourth quarter loss.
The payouts are made even more shocking by the fact that, as a TPM reader pointed out this afternoon, in the current climate, staffers hardly require massive incentives to stay on — which is usually the justification given for lavish bonuses. After all, it’s not as if they’re fighting off job offers from other thriving competitors.
Something Tim Geithner and co. might want to keep in mind the next time a failing bank comes begging for more taxpayer money.
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