This is the season for Wall Street bonuses to soar

[Andy Nguyen]

NEW YORK (AFP) - As the year end nears, Wall Street bankers and traders are counting down the days until they receive their Christmas bonuses as real estate brokers, car dealers and restaurateurs await a spending bonanza.
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After a record year in 2005, which saw bankers and traders get millions of dollars in bonus payments, this year's bonuses are also expected to be lavish.

"Big investment banks have done extremely well," said Alan Johnson, a Wall Street compensation expert at Johnson Associates.

Johnson said this year's bonuses are likely to be between 15 and 20 percent higher than a year ago, particularly as the financial district's big investment banks and brokerages reaped billion-dollar profits.

"Wall Street profits are projected to reach 14.5 billion dollars in 2006, an increase of 53.6 percent," according to a report by the New York state comptroller.

Mergers and acquisition business has ballooned this year as US stock markets have stormed higher, especially the leading blue-chip Dow Jones Industrial Average index which has notched up record closing highs over 12,000 points in recent weeks.

In a sign of improved fortunes, Wall Street added 7,200 jobs in the first 10 months of 2006, the largest headcount gain since 2000.

Stock and bond traders, derivative traders and the chief executives of big investment banks usually pocket the largest bonuses, said Johnson.

He said the largest bonuses sometimes top a whopping 10 million dollars.

"Very few professionals get nothing because it's a big part of your pay," Johnson explained.

Stress levels, however, usually spike ahead of the bonus envelopes being handed out as the size of the expected rewards becomes the number one conversation topic across many trading rooms.

Vendors of pricey goods in and around New York say they have noticed more brokers and traders window shopping for potential purchases.

"I've seen a lot of people starting to look very seriously now," said Gary DePersia, a Corcoran property agent for sumptuous homes in the Hamptons, a wealthy Long Island enclave.

DePersia recalled selling two big properties last year to Wall Street types at around 10 million dollars each.

"I think it's going to be a fantastic year," he said.

"The window-shopping has begun," said David Allouch, one of DePersia's New York-based colleagues.

"Young traders adore luxury apartments, with a doorman, swimming pools or gyms," Allouch said, saying such properties usually sell for around two million dollars.

Fancy car dealerships also hope to cash in on the expected spending blitz.

"It affects the market. They get a big sum and they want to spend it ... to buy themselves a luxury toy," said Joseph Arena, a sales manager at the Bentley Long Island car dealership.

"These toys are anywhere between 100,000 and 400,000 dollars," Arena said of the dealership's well-polished line up of Bentleys, and Ferraris and Porsche sports cars.

High end restaurateurs and gift merchants with boutiques around Wall Street are also hoping to benefit from Wall Street's end-of-year windfalls.

Christie's auction house is also gearing up for the yuletide bonus season.

"This year one can likely find a hedge fund manager from New York paying a record price for a contemporary work, (or) a banker from London competing for a rare Picasso," said Marc Porter, the president of Christie's Americas.

"Bonus season is upon us," he added.

Source http://news.yahoo.com/s/afp/20061207/ts_alt_afp/afplifestyleussectorbankingchristmas_061207161014

 

[Andy Nguyen]

Almost exactly 2 years later after the first post and this is a sign of a time

Dec. 11 (Bloomberg) -- Congratulations to E. Stanley O’Neal and Charles O. Prince III. They got theirs when they could.

Before he was fired as chief executive officer of Merrill Lynch & Co. in October 2007, O’Neal received $33 million in bonuses for his previous two years’ work.

A month later, Prince quit as CEO of Citigroup Inc., after getting $49 million in bonuses for 2003 through 2007.

Can you imagine the uproar in Brooklyn, Washington and Dubuque today if O’Neal, Prince or any of their compatriots were getting bonuses of that magnitude?

The traditional Wall Street pay system -- where bonuses accounted for 60 percent of pay -- died this year. Its demise was inevitable after the U.S. government committed $700 billion to save investment banks and commercial banks from their mind- numbing mortgage losses.

John Thain, Merrill’s current CEO, was slow to catch on to the new reality.

Thain, who has negotiated the sale of his 94-year-old firm to Bank of America Corp., asked Merrill directors for a year-end bonus of $5 million to $10 million. He came to his senses after a Wall Street Journal report of his request created a political dust-up. Government bailout capital was supposed to be for lending, not paying executive bonuses. On Monday, Merrill said Thain and four other top executives would forgo any 2008 bonuses.

Slashing Away

At the same time, Morgan Stanley chief John Mack gave up his bonus for the second straight year and his two co-presidents went without a 2008 payout. Total pay for the 14 members of the company’s operating committee was slashed by an average of 75 percent.

Morgan Stanley also started a “clawback” plan, whereby the firm will take back part of bonuses if recipients act in ways detrimental to the company. God help anyone who cooks the books or makes wild bets on the markets.

Executives at Goldman Sachs Group Inc., which has been the most profitable U.S. investment bank, had joined the choir earlier, forgoing bonuses for 2008. A year ago, CEO Lloyd Blankfein and co-presidents Gary Cohn and Jon Winkelried each got a total annual package of about $70 million, including bonuses of $27 million.

Considering their past pay, none of these people will starve. Thain got a $15 million bonus for taking charge at Merrill Lynch a year ago and might get a $5.2 million change-of- control payment for selling the firm to Bank of America. Morgan Stanley’s Mack got a bonus of about $40 million in stock and options two years ago.

Looking Ahead

Thain and three other top Merrill executives now will be paid by Bank of America. Congress, its bailout money at stake, will be watching to see how much they get.

The old bonus system is history now that Wall Street firms have become commercial banks. Goldman Sachs and Morgan Stanley have made the switch. Merrill Lynch will be part of Bank of America. Bear Stearns Cos. was subsumed by another commercial bank, JPMorgan Chase & Co. Lehman Brothers Holdings Inc. failed.

As commercial banks, Wall Street players are required to keep more capital in relation to their debts. No more deals with 50-to-1 leverage. Less debt leverage will mean lower profit and lower bonus expectations.

Wall Street will strive to build checking and savings accounts -- perhaps through acquisitions. They will find it’s safer to finance their investments with deposits rather than overnight loans.

A year ago, Wall Street’s then-Big 5 investment houses paid their employees bonuses totaling $39 billion. That was a record amount. It should stand forever.

(David Pauly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Pauly in Normandy Beach, New Jersey dpauly@bloomberg.net

Last Updated: December 11, 2008 00:01 EST