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Wall Street Bonuses Hit Record $39 Billion for 2007 (Update1)
By Christine Harper
Jan. 17 (Bloomberg) -- Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of the companies suffered the worst quarterly losses in their history and shareholders lost more than $80 billion.
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. together doled out $65.6 billion in compensation and benefits last year to their 186,000 employees. Year-end bonuses usually account for 60 percent of the total, meaning bonuses exceeded the $36 billion distributed in 2006 when the industry reported all-time high profits.
The New York-based firms, which shed 25 percent of their equity value during 2007, have said they're eliminating at least 4,900 jobs amid mounting losses from the collapse of the subprime mortgage market. Merrill posted a record fourth-quarter loss of $9.83 billion today, bringing the net loss for the five firms to $10.2 billion and reducing the combined net income for the full year to $11.5 billion, the lowest since 2002.
``To many people, it will be shocking and questionable,'' said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. ``People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people.''
The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, and the average bonus of $219,198 is more than four times higher than the median U.S. household income in 2006, according to data compiled by the U.S. Census Bureau.
Falling Stocks
Shareholders in the securities industry had their worst year since 2002, as Merrill and Bear Stearns slumped more than 40 percent in New York trading, costing the chief executive officers their jobs. Morgan Stanley fell 21 percent and Lehman dropped 16 percent. Only Goldman rose, gaining 7.9 percent.
Goldman earned $11.6 billion last year, more than the $11.2 billion combined profit reported by Morgan Stanley, Lehman, Bear Stearns and New York-based Citigroup Inc., the biggest U.S. bank. Merrill lost more in the past two quarters than it earned in the previous six. Its full-year loss of $7.8 billion was greater than the firm's 2006 profit.
Merrill, the largest U.S. brokerage, said it paid $15.9 billion of compensation and benefits for 2007, exceeding the company's $11.3 billion of revenue. While combined revenue for the five firms dropped 13 percent to $110 billion, compensation and benefits increased 8.7 percent. The increase in bonus payments was first reported in November by Bloomberg News, which estimated the five firms would pay out $38 billion.
`Tata Cars'
Bonuses for 2007 probably will mark a high point as revenue declines stretch into this year, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York.
``The gilded age just ended,'' he said. ``Ferrari dealers are going to be selling Tata cars. I think this is going to be the worst year we've had in a very long time.''
Management teams at Morgan Stanley, Merrill and Bear Stearns, where revenue fell last year, rewarded employees who made money in the first half of the year and who work in fastest-growing businesses by lifting the percentage of revenue they pay in salaries, bonuses and benefits.
``A great majority of Merrill Lynch's key businesses delivered record results in 2007,'' said CEO John Thain, who replaced the ousted Stan O'Neal last month, in today's statement. ``The firm is intensely focused on continuing this momentum and delivering growth and increased profitability.''
At Morgan Stanley and Bear Stearns, the chief executives sacrificed their own bonuses because their firms made bad bets on subprime mortgage-backed securities.
Blankfein and Fuld
The CEOs fared better at Goldman and Lehman, which reported record 2007 earnings. Goldman's Lloyd Blankfein was awarded a $67.9 million bonus, the biggest ever for a top Wall Street executive, and Lehman's Richard Fuld was granted $35 million in stock for 2007.
By paying more than the firm made in revenue, Merrill signaled to employees, shareholders and the competition that they'll compete aggressively in 2008 said Branthover of Boyden Global.
``They did lower compensation but they didn't lower it so much that they're going to lose everybody who's talented,'' Branthover said. ``They're being somewhat conservative but not pessimistic.''
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .
Last Updated: January 17, 2008 12:20 EST
DIAMOND DIGGER
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« Thread Started on Today at 1:07pm »
Wall Street Bonuses Hit Record $39 Billion for 2007 (Update1)
By Christine Harper
Jan. 17 (Bloomberg) -- Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of the companies suffered the worst quarterly losses in their history and shareholders lost more than $80 billion.
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. together doled out $65.6 billion in compensation and benefits last year to their 186,000 employees. Year-end bonuses usually account for 60 percent of the total, meaning bonuses exceeded the $36 billion distributed in 2006 when the industry reported all-time high profits.
The New York-based firms, which shed 25 percent of their equity value during 2007, have said they're eliminating at least 4,900 jobs amid mounting losses from the collapse of the subprime mortgage market. Merrill posted a record fourth-quarter loss of $9.83 billion today, bringing the net loss for the five firms to $10.2 billion and reducing the combined net income for the full year to $11.5 billion, the lowest since 2002.
``To many people, it will be shocking and questionable,'' said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. ``People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people.''
The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, and the average bonus of $219,198 is more than four times higher than the median U.S. household income in 2006, according to data compiled by the U.S. Census Bureau.
Falling Stocks
Shareholders in the securities industry had their worst year since 2002, as Merrill and Bear Stearns slumped more than 40 percent in New York trading, costing the chief executive officers their jobs. Morgan Stanley fell 21 percent and Lehman dropped 16 percent. Only Goldman rose, gaining 7.9 percent.
Goldman earned $11.6 billion last year, more than the $11.2 billion combined profit reported by Morgan Stanley, Lehman, Bear Stearns and New York-based Citigroup Inc., the biggest U.S. bank. Merrill lost more in the past two quarters than it earned in the previous six. Its full-year loss of $7.8 billion was greater than the firm's 2006 profit.
Merrill, the largest U.S. brokerage, said it paid $15.9 billion of compensation and benefits for 2007, exceeding the company's $11.3 billion of revenue. While combined revenue for the five firms dropped 13 percent to $110 billion, compensation and benefits increased 8.7 percent. The increase in bonus payments was first reported in November by Bloomberg News, which estimated the five firms would pay out $38 billion.
`Tata Cars'
Bonuses for 2007 probably will mark a high point as revenue declines stretch into this year, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York.
``The gilded age just ended,'' he said. ``Ferrari dealers are going to be selling Tata cars. I think this is going to be the worst year we've had in a very long time.''
Management teams at Morgan Stanley, Merrill and Bear Stearns, where revenue fell last year, rewarded employees who made money in the first half of the year and who work in fastest-growing businesses by lifting the percentage of revenue they pay in salaries, bonuses and benefits.
``A great majority of Merrill Lynch's key businesses delivered record results in 2007,'' said CEO John Thain, who replaced the ousted Stan O'Neal last month, in today's statement. ``The firm is intensely focused on continuing this momentum and delivering growth and increased profitability.''
At Morgan Stanley and Bear Stearns, the chief executives sacrificed their own bonuses because their firms made bad bets on subprime mortgage-backed securities.
Blankfein and Fuld
The CEOs fared better at Goldman and Lehman, which reported record 2007 earnings. Goldman's Lloyd Blankfein was awarded a $67.9 million bonus, the biggest ever for a top Wall Street executive, and Lehman's Richard Fuld was granted $35 million in stock for 2007.
By paying more than the firm made in revenue, Merrill signaled to employees, shareholders and the competition that they'll compete aggressively in 2008 said Branthover of Boyden Global.
``They did lower compensation but they didn't lower it so much that they're going to lose everybody who's talented,'' Branthover said. ``They're being somewhat conservative but not pessimistic.''
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .
Last Updated: January 17, 2008 12:20 EST