Paid well when they stuff up, paid well when they perform without distinction and paid well when their banks do well. The life of an American investment banker is one long gravy train, unequalled anywhere else in the world.
And with the credit crunch going and the recession receding it’s a life the bankers and their employers are fighting hard to keep, despite the mea culpas of 2008 when the sh*t hit the collective fan and many were exposed as the risk-taking fools and charlatans they remain deep down.
Unlike Macquarie Group in Australia, where executive remuneration plunged 50 per cent in the year to May as the bank’s earnings fell, a report released today in the US says bankers at nine banks that were bailed out by the Government with so-called TARP money last year, saw little, if any, loss in remuneration for the 2008 year when they came close to collapse.
The nine banks received $US125 billion in bailout funds late in 2008 in the wake of the collapse of Lehman Brothers that brought the likes of Goldman Sachs, Merrill Lynch and Citigroup to the brink of failure.
Collapse was brought on by the actions, products and other business methods of the banks and their employees, aided b y poor regulation, political mates and indifferencde at the highest levels of American Government and business until too late.
In fact, according to the report from Andrew Cuomo, the New York Attorney-General, that the bonuses paid to executives at the nine banks that received US government bailout money in 2008 were greater than net income at some of the banks.
One of those banks was Goldman Sachs, now labelled the Vampire Squid of Wall Street in a recent Rolling Stone article. Two others were JPMorgan and Morgan Stanley.
Citigroup and Merrill Lynch, two of the biggest basket cases, which together lost $US55 billion in 2008, paid bonuses of more than $US1 million each to a total of 1,400 employees, according to the report on bonus payments made by banks propped up with taxpayer funds.
“Two firms, Citigroup and Merrill Lynch suffered massive losses of more than $27 billion at each firm. Nevertheless, Citigroup paid out $5.33 billion in bonuses and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received Tarp bailouts totaling $55 billion,” the report said.
The study also showed that JPMorgan and Goldman Sachs which both made profits in 2008 because of strong first halves, paid the most million-dollar bonuses – 1,626 and 953, respectively. (Both banks have now repaid the Tarp capital they received last year to stop them from imploding).
One thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees.
In many ways, the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based.
But even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance.
Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well.
And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.
And the same banks have no shame, now that conditions are recovering with Goldman Sachs and JPMorgan lifting compensation set aside in the first two quarters of this year. At Goldman Sachs its up 33% at $11.4 billion. Morgan Stanley allowed more in bonuses in the second quarter of this year, despite losing $US1.3 billion.
A spokesman for Bank of America said bonuses were paid to 200,000 bank employees and 30,000 Merrill legacy employees.
But Mr Cuomo pointed out that compensation at both Bank of America and Citigroup hardly changed in 2008 from levels struck in the good years, even though both banks were heavy losers last year and were saved by the Federal Government from collapse.
For instance, at Bank of America, compensation and benefit payments increased from more than $10 billion to more than $18 billion in between 2003 and 2006. Yet, in 2008, when Bank of America’s net income fell from $14 billion to $4 billion, Bank of America’s compensation payments remained at the $18 billion level. Bank of America paid $18 billion in compensation and benefit payments again in 2008, even though 2008 performance was dismal when compared to the 2003-2006 bull market.
Similar patterns are clear at Citigroup, where bull-market compensation payments increased from $20 billion to $30 billion. When the recession hit in 2007, Citigroup’s compensation payouts remained at bull-market levels — well over $30 billion, even though the firm faced a significant financial crisis.
The report said there were some reasonable bonus payments among the nine banks. It said State Street Corp’s State Street Bank and Bank of New York Mellon Corp “paid bonuses that were more in line with their net income, which is certainly what one would expect in a difficult year like 2008.
But they were the exception, not the rule.