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Financial Times, November 4, 2008 article


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Wall St says cash aid will not go on bonuses

By Francesco Guerrera and Joanna Chung in New York

Published: November 4 2008 01:45 | Last updated: November 4 2008 01:45


Wall Street firms will pledge not to use the recent $125bn cash infusion from the US government to pay bankers’ bonuses in an effort to defuse the mounting political furore over compensation at battered financial groups.

In recent days, lawyers for the nine banks that received the government funds held talks over how to respond to calls for pay restraint from Congress and state regulators, according to people familiar with the situation.

The companies – Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo – said they would not spend public money on compensation, the people added. Wall Street executives say that banks will pay bonuses from earnings and existing cash resources, like in previous years, and use the government capital for acquisitions and to replenish their depleted balance sheets.

The pledge on bonuses comes as bankers’ large pay packages have become a target of public anger amid the devastating effect of the financial crisis on US consumers and homeowners.

The nine institutions which sold preferred shares to the government in exchange for $125bn, have set aside an estimated $108bn for employee compensation and bonuses in the first nine months of the year.

The companies plan to detail their individual responses in the next few days in letters to Henry Waxman, the US congressman presiding over hearings on the financial crisis, and Andrew Cuomo, the New York attorney-general. The two have warned Wall Street against the use of government funds to pay bonuses and demanded documents detailing the nine companies’ compensation and bonus schemes.

Last week, Nancy Pelosi, the speaker of the House of Representatives, and Harry Reid, the Senate majority leader, called on the government to toughen the restrictions on executive pay for the institutions that have received federal funds.

The banks declined to comment on the conference call. Wall Street executives say that after one of the worst years for the industry, average bonuses will be down sharply this year.

However, they argue that they will still have to pay substantial compensation to star bankers and traders in order to avoid a brain drain from the industry into rival sectors such as private equity and hedge funds.

Additional reporting by Greg Farrell in New York




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