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Merrill Paid Billions In Bonuses, As New Owner Sought More Bailout Dollars
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.
Josh
Zachary
Am I the only one that thinks John Thain should be brought up on charges?
January 22, 2009 4:45 PM | Reply | Permalink
No, you're not. It's exactly what I was thinking as I read it. Since Bank of America appears not to have known how big the losses were, that suggests fraud. Since Merrill Lynch presumably had to be up front with the feds when seeking help, this may constitute fraud in a criminal, not merely metaphysical sense.
January 22, 2009 5:32 PM | Reply | Permalink
If anything, as written, M.L. really pulled the wool over Bank of America's eyes. Bank of America can't sue M.L. for damages, since they taking over. But, if anything, this seems to be a breach of contract. If I was B of A, I'd want to end this deal and let M.L. fail. Problem is, I bet they couldn't return the money to the Fed as they are in trouble too.
What a total CL.
January 22, 2009 6:11 PM | Reply | Permalink
I mean, 'CF' not 'CL'.
January 22, 2009 6:11 PM | Reply | Permalink
It hope the executives who approved the bonuses payed after the bailout could be brought up on charges of misappropriation of government funds. In that case I believe that the employees who received the funds could be liable for the money and have to pay it back. I know it's a stretch but I hope that claim could be made by the government now that the inept Bush administration is gone. To me this is nothing but fraud!
It's time to end the self serving "good old boy" network in American industries and financial institutions!
January 23, 2009 8:28 AM | Reply | Permalink
Throw the bum in jail. This is ludicrous.
January 22, 2009 5:01 PM | Reply | Permalink
Oh come on, Jonze. The fundamentals of the economy are strong. We don't need the government telling us what to do, the free market is perfectly balanced and efficient.
January 22, 2009 5:55 PM | Reply | Permalink
I remembered his $10MM gimme but didn't know about (or forgot) the Merrill billions in bonuses. Thanks for reminding me.
TPM needs to change its initials to TPMO - This Pees Me Off. You all are very good at coming up with stories that, well, aggravate me.
January 22, 2009 6:11 PM | Reply | Permalink
Republicans go crazy when workers ask for $10 an hour but they've been very quite about John Thain. When Bob Nardelli got $200M for destroying Home Depot they didn't say a word either.
January 22, 2009 6:13 PM | Reply | Permalink
"We the People" ARE the GOVERNMENT....and unless we do something besides sit around on our collective asses and complain about what "Congress" is or isn't doing..every one of these shysters, frauds and "Brooks Brothers" con-artists, will get away with every bit of our money....WE are the Government...its time we started acting like it...demand accountability and retribution...!!
January 22, 2009 6:21 PM | Reply | Permalink
These funds should be seized and this company penalized for corruption. Why is it not considered stealing at its most basic level?
They needed tax dollars to bail them out,...so they give all their funds to CEOs in the form of bonuses(payoffs...bribes) and then replace those funds with tax dollar bail out funds.
Imagine a bank whose manager takes all the cash from the vault and gives it to his assistant managers and then asks the government for your tax dollars to replace it so those with accounts there can get their savings account money back.
This has already happened. Those CEOs should be forced to give that money back, all their holdings seized, all their property sold if necessary or they should be jailed for theft and fraud. They have extorted our money by blackmailing the economy with failure while robbing the US treasury. It should not be allowed. It should actually be prosecuted...give the money back or go to jail and lose your property.
January 22, 2009 6:47 PM | Reply | Permalink
Good idea bjobotts, I agree with you and Chumbawumba (above.)
January 22, 2009 6:51 PM | Reply | Permalink
This points out that you can't sort-of halfway nationalize the banks. It's like being slightly pregnant. The way we're doing it, these greedy little capitalist bastards will rob us blind, every chance they get.
We need to actually OWN the banks, throw out these useless executives, and manage the banks for the public good. Or let them file for bankruptcy. Simple choice.
I don't know whether giving out the bonuses was actually illegal. It should be investigated. And the New York Attorney General says he will do so. I'd like, at a minimum, to see the names of all bonus recipients, and the dollar amounts, made public.
How many people recieved these bonuses? I mean, 3 to 4 billion dollars is a LOT of money! That's enough to give 3 or 4 million dollars to a thousand people!! (Or tens of millions to literally hundreds of people.) How many people worked at Merrill? Did they all get bonuses? (Were some of the bonuses "only" 100k or so?)
-- ARG
January 22, 2009 7:28 PM | Reply | Permalink
The question I'd be asking is who at BofA knew about the $3.4b in bonuses at the time Merrill was being acquired? Did Merrill not disclose what would make a big difference on their balance sheet and P&L? If not, I'd say there was fraud in the transaction. If so, I'd say BofA is partner to this charade. My guess is the latter and that since they're playing with other people's money, they didn't care very much.
January 22, 2009 7:58 PM | Reply | Permalink
there should be universal outrage at this egregious act of greed and selfishness. we can do something besides complain: write your congressperson, senator. Best is Barney Frank who I believe shares the outrage and is in a position to do something. Nationalization does not sound out of bounds as our banking system is nearing insolvency because of actions by our greedy best and brightest.
January 22, 2009 9:00 PM | Reply | Permalink
I guess you folks didn't hear about the $1.2 million he spent redecorating his office.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aPsokRQkdnqM&refer=home
$35k for a toilet. URghgeughskd312r.
Sorry, I just threw a clot there.
January 22, 2009 9:22 PM | Reply | Permalink
To answer jrw, I believe it is because of the quote below:
"Lewis himself has faced withering criticism for rushing the buy Merrill for $28 billion after less than two days of due diligence."
(Ken Lewis is BofA CEO btw. )
LESS THAN TWO DAYS OF DUE DILIGENCE. It would stand a chance of being almost comical if I weren't paying for it every week out of my own withholdings.
The company I work for was bought back in June and we are STILL running due diligence errands for them. Given that Merill's books are essentially a financial landfill I wouldn't be surprised if they just looked at a few big numbers hoping they could salvage something/anything. Unfortunately all you get from a landfill is sludge. Sludge like John Thain. I hope he gets the Dick Fuld treatment and knocked out cold because it's times like these that make you wish we have a penal system based on Restitution. I would make Thain play 52-card pickup all day.
Quote is from: http://www.thedailybeast.com/blogs-and-stories/2009-01-22/john-thains-87000-rug/
January 22, 2009 10:33 PM | Reply | Permalink
Can we get a law passed to tax all financial industry income above $200,000 from 2008 forward, at 100%?
January 22, 2009 10:55 PM | Reply | Permalink
Government bailouts should be given only to insolvent banks, if at all. A bank (or other company) which is insolvent should not be paying either bonuses or dividends.
Why? Because it is a fraud on the creditors. The company knows that it will be reorganized or even liquidated in a bankruptcy. Under these circumstances, the shareholders are going to be wiped out and the assets used to pay off creditors. By making payments to either shareholders or employees, funds which would go to creditors are being diverted to people who otherwise would not receive the money.
What the creditors should do (and the government is a creditor) is to force Merrill into an involuntary bankruptcy. Under the Bankruptcy Code, any payments on an antecedent debt made within 90 days of the filing is a preference. Any payments to an insider (corporate official) made within a year is also a preference. These payments may also be fraudulent conveyances. If they are either preferences or fraudulent conveyances, the people receiving the money have to return it.
The government should not overlook civil remedies. Debtors have been trying to hide assets (or give them away to friends) for centuries, and the Courts are quite capable of handling this. Typically, the person receiving the payments (bonuses) is required to return them, plus they are hit with punitive damages to discourage similar conduct in the future. If someone received a $1 million bonus, make them repay $2 million -- and start seizing houses, cars and other assets until it is paid off. These people DO have money.
Both the creditors and shareholders have claims because these payments have the effect of diluting the debts or the value of the shareholders' stock. It is fraud in every sense of the word.
January 22, 2009 11:49 PM | Reply | Permalink
John Thain and Bernard Madoff need to be cellmates so they can steal from one another.
January 23, 2009 2:02 AM | Reply | Permalink
Thank God a blog site with contributors who see the problem. The CEO's have stolen this country blind while treating the working people like second class citizens. It is disgusting or worse if there is a word for that.
January 23, 2009 7:50 AM | Reply | Permalink
Words words words. Execute one or two of these bastards and behavior will change. Change the penalty and you'll change the behavior.
January 23, 2009 7:51 AM | Reply | Permalink
Why are Thain and Madoff NOT IN JAIL?? They both deceived the public at large and let taxpayers fund their FRAUDS!! Obama-nation, take note that this is what needs to be STOPPED NOW or you'll lose the public trust immediately! This is where "CHANGE" starts!!
January 23, 2009 8:20 AM | Reply | Permalink
Thomas Jefferson once said "Letting a private bank print money would be the worse thing we can do for Our Country". Now look at all of our problems. Where are our true Patriots now?
January 23, 2009 8:36 AM | Reply | Permalink
Hate to break the news to you guys and gals but all the banks that receive TARP and other federal funds pay "bonuses" (JPMChase, Citi, etc.). What I don't think folks understand is that the current compensation model on Wall Street for ALL employees, not just the Masters of the Universe IB bankers, is to get a relatively small base salary and a "bonus". The "bonus" isn't really something extra, it's more like deferrred compensation paid out at year end. So whether you are an Admin making 75K, an inhouse lawyer or compliance person with total compensation at $300K, you too would get a bonus. In the Admin's case, the bonus would probably be $10-$20K and in the inhouse lawyer or compliance person's case, they would have a base of $150 and a bonus of $150 too. The bonus isn't "extra" for these folks, it's part of the total compensation package. Just like with a payroll, the bonus money "accrues" over the year to be paid out at year end.
Of course it is odd that the Board pushed this through prior to consumation of the BofA merger and we don't know how much of it went out the door in 7 and 8 figure chuncks, but before you guys get all "Wingnutty" about this stuff (pitchforks and torches, etc.), please remember that folks "getting by" in an expensive place like NYC and its suburbs really rely on that bonus to pay bills, property taxes, etc.
January 23, 2009 8:51 AM | Reply | Permalink
When I think about people who are "getting by" on social security checks amounting to $10,000 to $15,000 per year, I really get all tearyeyed when these executives need 7 and 8 figure bonuses in addition to their 6 figure salaries because of the high cost of living in New York City.
January 23, 2009 9:25 AM | Reply | Permalink
My point was not to justify the 7 and 8 figure bonuses, but just to point out that there are those much further down the food chain at these companies who make valuable contributions and should not be swept up in the Gordon Gecko stereotypes. . .Now, if the issue is we should do away with Wall Street, NYC, etc. altogether, then you are getting all "No Quarter" on me and I don't have an answer for you.
January 23, 2009 9:41 AM | Reply | Permalink
Maybe you can answer my question from further upthread, ie. How many people are we talking about?
Today I hear the total amount of bonuses was north of $4 billion.
So are we talking about tens of thousands of people getting bonuses? Everybody who worked at Merrill? Because if it's only a couple of thousand people, then the bonuses are well into the millions.
Even if it's 20,000 different people, the average "bonus" would be $200k.
So I still think they've got some 'splainin' to do.
-- ARG
P.S. According to http://ir.ml.com/quick.cfm?section=employees , Merrill had 45,000 US employees, plus another 15,000 overseas. Did they ALL get bonuses?
January 23, 2009 10:55 PM | Reply | Permalink
Getting by on millions is not a cause for pity. These people hold these jobs, not for what they contribute, but for who they know! Being part of the elitist group is no indication of their worth! Tax every one who received over $200,000 in bonuses with a 95% excess bonus tax
January 23, 2009 9:22 AM | Reply | Permalink
And don't forget about the banks that are taking Federal money with one hand and turning the screws on its customers with the other.
JPMorgan/Chase raised its rate of payback on its credit cards from 2% principal to 5% of principal monthly. They did this to all of their customers and tacked on a $10/month service charge for the privilege of getting screwed by Chase. They cite the poor business conditions as a reason to send their customers to the poorhouse in order to give Chase more immediate liquidity. Legal? Yes. Right? No. Particularly when the money was borrowed with the expectation of a 2% payback, this makes one wonder where it will all end.
And of course, nobody's congressman or senator wants to tack on a TARP condition that the banks can't unilaterally change the terms on customers who have been paying on time all along.
January 23, 2009 1:38 PM | Reply | Permalink
How many people was the $3-$4 billion divided between?
January 23, 2009 5:30 PM | Reply | Permalink
TARP was not intended to be used for bonuses, salaries, decorating….
The original TARP money was given to banks to help buy up toxic assets and to allow credit to start flowing freely again. Instead, no one seems to know what the banks have done with the money except to use it to prop up their assets but also to give out unearned bonuses to their employees and for executives like John Thane to spend over $1 million to redecorate his office. Example, Thane approved bonuses for the Merrill employees before January 1…before the money was actually received, then BOA received another $20 billion of TARP money. This type of misuse of the TARP money is fraudulent, obscene and is a prime example of the greed and lack of any morals of the financial industry. This does not help instill confidence in the financial institutions that have crippled the world’s economy. Obama needs to insist that any money used in this way be given back to the govt…the bonuses and excessive salaries are/were based on toxic and in most cases profits that never truly existed, so the money must be given back.
I have read estimates that the amount of toxic assets may exceed $50 trillion dollars, if this is the case, there is no point in pouring money into a toxic banking and financial structure. Let the system correct itself w/o giving the banks the impression that they are too big to fail and that anything they do will pass…
Our government officials must insist that a full disclosure of the $350 billion in TARP money be given by any entity receiving any of the funds. It is not ok to simply say “We will be more careful with the next $350 billion.” That is taxpayers’ money and when we are told we have no right to tell the financial institutions what to do w/the money they are incorrect; as stockholders/stakeholders we would be remiss in not demanding a full disclosure.
Also, it would be great if the media would start reporting and investigating the greed on Wall Street and the financial sector since our economy is falling apart and the only way to fix it is to analyze what and who created the problem to begin with. Instead, we are giving the people who caused the problem billions of dollars and they are only protecting themselves and trying to maintain their “financial world” which has devastated our world.
Now I am hearing murmurs of the dire state of commercial real estate….so please tell me why in my community, businesses are closing, there is empty retail and commercial space everywhere, but there is major construction in full force everywhere as well. Next we will be asked by these commercial investors to bail them out for their bad business practices…
Everyone is tired, angry and frustrated by the entire process and something needs to be done through the general population as no one seems to get it right in the government nor the media…you guys just tell us what you “are allowed to say” out of fear of a economic crisis…well, guess what it’s already here for a lot of people and you need to report on the true status of the American economy.
Go out and interview people in inner-city Detroit, Chicago, New Orleans, and give a true picture of the economy…stop only reporting what you are told to report to the public. Make our public officials accountable, you know the reasons for the financial crisis…start reporting on them so it doesn’t continue….
January 25, 2009 4:22 PM | Reply | Permalink