By Christine Harper
Oct. 30 (Bloomberg) -- Wall Street's
chief executives will hunker down and pay bonuses this year in
the face of the worst financial crisis since the Great
Depression, a taxpayer bailout and mounting political outcry,
industry veterans say.
Odds that Wall Street will forgo the payouts are ``slim to
John Gutfreund, 79, president of New York-based Gutfreund
& Co. and the former chief executive officer of Salomon
Brothers Inc. ``They're going to have to be a little bit
sensitive because politicians, whether they like it or not,
are part of their lives now.''
Year-end payments at the nine banks that received $125
billion from the U.S. Treasury are under investigation by U.S.
Henry Waxman and New York Attorney General
Andrew Cuomo, who are demanding details on companies'
compensation plans. Three of the firms, Goldman Sachs Group
Inc., Morgan Stanley and Merrill Lynch & Co., have already set
aside $20 billion to pay bonuses this year.
The payouts typically account for about two-thirds of
compensation at the biggest Wall Street firms. The bonuses are
accrued throughout the year in line with revenue.
``Financial institutions that have accepted federal
assistance should be required to face consequences from their
earlier bad decisions and cancel those bonuses,'' Senator
Olympia Snowe, a Maine Republican, said in a statement on
Few of the nine companies receiving money from the U.S.
Treasury are performing well this year. Only
Well Fargo & Co. has a higher share price, up 6 percent
this year, with the rest showing declines ranging from 18
JPMorgan Chase & Co. to 72 percent at
Morgan Stanley. State Street Corp. is the only firm to
report increased profits.
Merrill Lynch has reported five straight quarterly losses.
``The public pressure might mitigate against bonuses at the
levels we've seen recently and that's in sync with the
economic issues,'' said
Fred Joseph, 71, co-head of Morgan Joseph & Co. in New
York and the former CEO of Drexel Burnham Lambert Inc. ``There
will be bonuses this year, but I think they may be reduced by
a larger percentage.''
Waxman, a California Democrat and chairman of the House
Committee on Oversight and Government Reform, sent letters on
Oct. 28 to the nine banks that are receiving money in the U.S.
Treasury's capital purchase program requesting details of
their compensation plans.
Cuomo sent letters yesterday to the nine companies
requesting detailed accounting of expected payments to top
executives in the ``upcoming bonus season,'' including
information on the expected bonus pool for this year.
Nancy Pelosi of California and Senate Majority Leader
Harry Reid of Nevada, both Democrats, urged Treasury
Henry Paulson to put restrictions on severance pay for
executives that participate in the bailout.
The nine companies receiving the initial $125 billion from
the Trouble Asset Relief Program, of TARP, are Goldman Sachs,
Morgan Stanley, Merrill Lynch, Citigroup Inc., JPMorgan, Wells
Fargo, Bank of America Corp., Bank of New York Mellon Corp.
and State Street.
``Wall Street bank executives are set to walk away with
billions of bonuses at the end of this year,''
Barack Obama, the Democratic presidential candidate, said
in a campaign speech on Oct. 28. ``We call that an outrage.''
Citigroup, in an e-mailed statement, said it will cooperate
with ``federal and state inquiries about our global
expenditures for wages, health insurance and other benefits,
which we believe reflect compensation best practices.''
The New York-based bank said it will also adhere to
constraints on executive pay imposed under TARP. Spokespeople
for the other firms targeted by Waxman and Cuomo either
declined to comment yesterday or said they will cooperate with
John McCain, Obama's Republican opponent, told supporters
in Miami yesterday that ``I'm going to make sure we take care
of the working people who were devastated by the excesses,
greed and corruption of Wall Street and Washington.''
Joseph, the former Drexel CEO, said companies that don't
pay bonuses risk losing employees who are unwilling to settle
for salaries. Salaries in the industry range from about
$80,000 to $600,000 a year.
``A lot of guys wouldn't want to work this hard just for
salaries,'' he said. ``You'd have a serious exodus from the
business by a lot of really talented people -- they'd become
CFOs of companies, go to firms that didn't participate in the
TARP program, go to hedge funds, or start hedge funds.''
Gutfreund, the former Salomon CEO, said Wall Street
executives are likely to find ways to pay bonuses and manage
the political uproar.
``I'm sure there are creative ways,'' he said. ``There are
all kinds of devices to cover yourself in terms of paying
To contact the reporter on this story:
Christine Harper in New York at
Last Updated: October 30, 2008 00:01 EDT