The Shock Doctrine

Disaster Capitalism in Action: executive compensation

Banks Paid $32.6 Billion in Bonuses Amid U.S. Bailout

Karen Freifeld, Bloomberg News, July 30, 2009

"Citigroup Inc., Merrill Lynch & Co. and seven other U.S. banks paid $32.6 billion in bonuses in 2008 while receiving $175 billion in taxpayer funds, according to a report by New York Attorney General Andrew Cuomo.

"Cuomo analyzed 2008 bonuses at nine banks that received Trouble Asset Relief Program financing from the U.S. government. New York-based Citigroup and Merrill, which has since been taken over by Bank of America Corp., received TARP funding totaling $55 billion, Cuomo said.

" 'When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,' Cuomo’s office said in the 22-page report. '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.'"


Banks Use Life Insurance to Fund Bonuses

Ellen E. Schultz, Wall Street Journal, May 20, 2009

"Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries. Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits.

"Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings. Wachovia Corp. has $12 billion, J.P. Morgan Chase & Co. has $11.1 billion and Wells Fargo & Co. has $5.7 billion....

"Though not improper, the practice is similar to what is known as 'janitors insurance,' an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions. And some families have complained that employers shouldn't profit from the deaths of their loved ones."


Wall Street Pay Returning to Outrageous 2008 Level

Louise Story, New York Times, April 26, 2009

"Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits. Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements....

"Of the large banks receiving federal help, Goldman Sachs stands out for setting aside the most per person for compensation. The bank, which nearly halved its compensation last year, set aside $4.7 billion for worker pay in the quarter. If that level continues all year, it would add up to average pay of $569,220 per worker — almost as much as the pay in 2007, a record year."


Most of AIG's $160 Billion Bailout Went to Large Banks; Firm Also Spent $165 Million in Staff Bonuses

Hugh Son and Robert Schmidt, Bloomberg News, March 16, 2009

"American International Group Inc., under pressure to reveal how it spent billions of dollars in taxpayer funds since its September bailout, said $105 billion flowed to U.S. states and banks including Goldman Sachs Group Inc., Societe Generale SA and Deutsche Bank AG. Banks that bought credit-default swaps or traded securities with AIG got $22.4 billion in collateral, $27.1 billion in payments from a U.S. entity to retire the derivatives, and $43.7 billion tied to the securities-lending program, AIG said yesterday in a statement. States led by California and Virginia got $12.1 billion tied to guaranteed investment contracts....

"The disclosure may fuel a backlash over AIG’s bailout, valued at about $160 billion as of March 2, which has already drawn expressions of anger and frustration from Congress, Treasury officials and Federal Reserve Chairman Ben S. Bernanke. AIG was lambasted yesterday for awarding $165 million in retention pay to employees of the unit that sold the swaps, deals that helped trigger the global credit crisis. AIG has said it plans to spend as much as $1 billion to keep people from leaving as it sells units....

"Goldman Sachs led beneficiaries, with $12.9 billion, followed by SocGen, France’s No. 3 bank, with $11.9 billion, and Deutsche Bank, Germany’s biggest lender, with $11.8 billion."


Merrill Lynch's Executives Made Millions in 2008 While the Firm Lost Billions

Reuters, Reuters, March 4, 2009

"Merrill Lynch & Co's 10 highest-paid employees got a total of $209 million in cash and stock in 2008, up slightly from $201 million they received a year earlier, the Wall Street Journal said, citing reviewed figures.

"Andrea Orcel, the firm's top investment banker, was paid $33.8 million in cash and stock in 2008, the paper said... Eleven top executives were paid more than $10 million in cash and stock last year, the paper said, citing people familiar with the situation. Another 149 received $3 million or more, the paper said."


UK Cuts Bonuses to Bailed Out Banks by More than 90%

Gonzalo Vina and Jon Menon, Bloomberg News, February 17, 2009

The U.K. government will cut bonuses at Royal Bank of Scotland Group Plc by more than 90 percent and eliminate them for many executives in a bid to end 'rewards for failure.' Executives responsible for the bank’s record 28 billion pound ($40 billion) 2008 losses will receive no bonuses, a Treasury spokesman said. Britain’s biggest government-owned bank said it will impose a pay freeze for directors and executives, and all other pay rises will be below the rate of inflation.

"The same principles on bonuses will apply to Lloyds Banking Group Plc, 43 percent government-owned, Chancellor of the Exchequer Alistair Darling said. 'Don’t reward failure,' he told Sky News today. 'That’s as good for Lloyds as it is for RBS,' he said."


Morgan Stanley, Citigroup to Give Brokers Big Retention Fees

Aaron Lucchetti, Wall Street Journal, February 14, 2009

"Building the biggest brokerage firm on Wall Street is proving costly to Morgan Stanley and Citigroup Inc., which are planning to pay brokers about $3 billion to keep them from being poached away from the joint venture, people familiar with the matter said.

"While the terms aren't expected to be announced until later this month, the issue could grow politically sensitive, because the U.S. government holds stakes in Citigroup and Morgan Stanley as part of its bailout of the financial system. Morgan Stanley is paying Citigroup $2.7 billion to take control of the joint venture, which was announced last month and will combine its brokerage operation with Citigroup's Smith Barney unit....

"The pay packages, ranging from 50% to about 260% of a broker's annual production, are rubbing some the wrong way, especially at a time when financial-services firms have taken government money and many of the brokers' clients are suffering losses. Depending on the size of the individual broker's business, the payments can exceed $10 million."


Merrill Lynch Gave $1 Million Each to 700 of Its Staff

Chad Bray, Wall Street Journal, February 12, 2009

"Merrill Lynch & Co. 'secretly' moved up the date it awarded bonuses for 2008 and richly rewarded its executives despite billions of dollars in losses, giving bonuses of $1 million or more apiece to nearly 700 employees, New York Attorney General Andrew Cuomo said.

"In a letter to House Financial Service Committee Chairman Barney Frank, (D., Mass.), Mr. Cuomo said the Wall Street firm awarded $3.6 billion in bonuses to more than 39,000 employees before its Jan. 1 purchase by Bank of America Corp., including more than $121 million to four top executives.

"Mr. Cuomo, who is probing compensation practices at financial firms, said he was told by Merrill's board in November that any bonuses to be paid would be 'based upon a combination of performance and retention needs.'

"'Rather, in a surprising fit of corporate irresponsibility, it appears that, instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives,' Mr. Cuomo wrote in his letter."


Disgraced HBOS Bankers Received Their Goodbyes in Cash

Jill Treanor, Guardian, February 7, 2009

Disgraced banking boardroom executives at HBOS walked away with cash payments worth hundreds of thousands of pounds each, the Guardian has learned. Executives were handed the cash after HBOS was rescued by Lloyds TSB and the takeover formally activated a "change of control" clause in their contracts....

"It comes as millions of pounds of bonuses are about to be paid to employees who remain at Royal Bank of Scotland. The cash payments at HBOS were made at the discretion of the bank, which has received £11bn of taxpayer funds and been folded into the Lloyds Banking Group.

"The bank is understood to have allowed share-based performance schemes to pay out in cash rather than shares. Such schemes might more ordinarily roll into the shares of the new company. The directors are thought to have received 10% of the value of the shares at the time they were granted, rather than their current value. Some of the shares were granted at £11 but were valued at less than 70p when the rescue takeover went through."


New Salary Rules Won't Affect Most Firms Already Receiving Taxpayer Money

Matthew Benjamin and Christine Harper, Bloomberg News, February 5, 2009

"Executives at Goldman Sachs Group Inc., JPMorgan Chase & Co. and hundreds of financial institutions receiving federal aid aren’t likely to be affected by pay restrictions announced yesterday by President Barack Obama.

"The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more....

"In addition, some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the government assistance with interest. 'They’re just allowing companies to defer compensation,' said Graef Crystal, a former compensation consultant and author of 'The Crystal Report on Executive Compensation.' The restrictions are 'a joke,' he said, because 'if the government is paid pack, you can be sure that the stock will have risen hugely.'"

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