bonuses as losses mounted ahead of sale to BofA
By Greg Farrell and Julie
MacIntosh in New York
Published: January 22 2009 02:00 | Last updated: January 22 2009 02:00
Merrill Lynch took the unusual step of
accelerating bonus payments by a month last year, doling out billions of
dollars to employees just three days before the closing of its sale to Bank
The timing is notable because the money was paid as Merrill's losses were
mounting and Ken Lewis, BofA's chief executive, was seeking additional funds
from the government's troubled asset recovery programme to help close the
Merrill and BofA shareholders voted to approve the takeover on December 5.
Three days later, Merrill's compensation committee approved the bonuses,
which were paid on December 29. In past years, Merrill had paid bonuses
later - usually late January or early February, according to company
Within days of the compensation committee meeting, BofA officials said they
became aware that Merrill's fourth-quarter losses would be greater than
expected and began talks with the US Treasury on securing additional Tarp
Last week, BofA said it would be receiving $20bn in Tarp money, in addition
to the $25bn that had been earmarked for it and Merrill last year. It was
then revealed that Merrill had suffered a $21.5bn operating loss in the
Despite the magnitude of the losses, Merrill had set aside $15bn for 2008
compensation, a sum that was only 6 per cent lower than the total in 2007,
when the investment bank's losses were smaller.
The bulk of $15bn in compensation was paid out as salary and benefits
throughout the course of the year. A person familiar with the matter
estimated that about $3bn to $4bn was paid out in bonuses in December.
Nancy Bush, an analyst with NAB Research, described the size of the 2008
Merrill bonus payments as "ridiculous".
BofA said: "Merrill Lynch was an independent company until January 1 2009.
John Thain (Merrill's chief executive) decided to pay year-end incentives in
December as opposed to their normal date in January. BofA was informed of
BofA declined to specify when Mr Thain informed the bank of his decision.
A source familiar with the matter says Mr Thain, in the weeks leading up to
the December 8 compensation committee meeting, had been weighing the
possibility of requesting a bonus of at least $10m for himself before
ultimately deciding against such a move.
Financial Times Limited 2009