Merrill Execs Pay Selves Bonuses Ahead of Schedule (and Before BofA Closing)

Playing fast and loose seems to be the theme of the evening. First we have the credulity-stretching China fourth quarter GDP release, and now we have the eleventh hour stealing of the silver by Merrill’s top executives as one of the firm’s final acts.

Let us remember the fact set: Merrill managed to get Bank of America to agree to buy it in September, elbowing aside Lehman. The deal is subject to shareholder approval, however. BofA, realizing it has acquired a garbage barge, threatens to scuttle the deal unless Uncle Sam lends a helping hand. Negotiations proceed behind closed doors (and neither Merrill nor BofA shareholders are told prior to the shareholder vote that BofA has agreed to do the deal subject to some form of government support).

Now we learn that after it was evident that the US taxpayer was going to subsidize the Merrill acquisition, the Merrill compensation committee accelerated bonus payments by a month to make sure they were paid out before the BofA deal closed.

Efforts are being made to minimize the amount involved (it is claimed to be only $3-$4 billion, but the fact is amounts were reserved in prior quarters that are excessive in light of full year performance. So the fact that some of the amounts were allowed for in previous quarters is misleading).

Were Merrill bankrupt, the bonus payments could be deemed fraudulent conveyance and clawed back. But we don’t do either financial firm bankruptcies or clawbacks in this country.

From the Financial Times:

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 of America.

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 deal.

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 officials.

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 money…

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”

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  1. Anonymous

    It shows you Ivy league executive scum master’s of the Universe deserve
    nothing more than a one way ticket to Antartica.

    Nationalize Bank of America, fire all the executives and seize their ill gotten gains.

    Seize their ill gotten gains…

    Please note, if you work for Bank of America, and society collapses- I don’t care if you’re the lowest of the low executive. You should be very afraid.

  2. doc holiday

    See: Disgorgement is the forced giving up of profits obtained by illegal or unethical acts. A court may order wrongdoers to pay back illegal profits, with interest, to prevent unjust enrichment. Disgorgement is a remedy and not a punishment.

    >> I wonder how they set the rate of interest for this?

    In my world, these fuc-ing bums would be in prison looking out at heads on pikes which would line the exercise yard, where fear would the main activity of the day (and night).

  3. Hu Flung Pu

    It’s bullshit like this that (a) undermines the “legitimate” work that lots of folks are trying to do to keep the financial system from imploding, and (b) makes me want to kick these asshats in the nutsack… repeatedly.

    I want to say “unbelievable.” But unfortunately it’s par for the course given what we’ve seen thus far. Just wow.

  4. bg

    I don’t play a lawyer on TV, but you have a lot of credibility on this subject, and these feels a bit more eggregious and a bit more conspicuous than normal. I think Madoff wanted to pay bonuses early too.

    Normally in these situations you targeted a specific government official, such as “I hope that X will start an investigation to show that the Obama administration is going to do a better job of regulating an out of control industry.” The argument seems more reasoned with a call for action.

  5. Anonymous

    Can’t the govt sue over this?

    Why doesn’t anyone care? Is ML really buying the silence of US govt

  6. Gloppie

    It is going to take an irate citizen with a sniper rifle to drive the point across.
    Where is John Lee Malvo when you need him ?

  7. Anonymous

    these mother f**kers brought the entire global financial system to the brink and they reward themselves with billion dollar bonuses..these people deserve to eat dog poo and die!
    when will this nonsense end?

  8. doc holiday

    By my dumbass calculation, based on this year’s P/E and EPS, BAC is worth $5.09 and only retarded morons would speculate on this junk — and I seriously hope this is nationalized and every employee taken out! However, I still like the good bank, bad bank idea and these crooks should be forced to disclose all the bad bank garbage they hold and then they should be forced out of business by the FDIC or some agency that gives a crap about Americas future!

  9. Anonymous

    Here’s an unrelated question about bank nationalization in the US… there was a brief mention in today’s WSJ:

    Is there any precedent for a government *not* guaranteeing all deposits after a nationalization? Is there any reason to even consider the possibility that, if the US were to nationalize BofA or the like, they would only allow FDIC to cover up to $250k… and all other deposits would just be wiped away?

    I believe Iceland did something similar with non-Icelandic depositors. I’m curious if the US government could ever do the same to American account holders…

  10. Anonymous

    I like the comment from Yves that the bonus amount is only 3-4 bln. How acclimated have we all become to large numbers that 3 to 4 billion and the word only are used in the same sentence – especially when discussing bonus payouts – for a company that was on the verge of imploding. WTF???

    BTW – I love this sight. It is one of just a few that I have to visit daily, and most comments from Yves are insightful.

  11. Daniel from Eurozone

    Hi Yves,

    The recent nominations by Obama deliver a terrible message to all of us in the finance blogosphere.

    No change in view!

    That certainly makes payments of gigantic bonuses to insolvent banks possible.

    What I do not understand is the very limited number of court actions in the US.

    Is US justice so costly that any action is impossible? Are the courts crowded to such extent that it is not physically possible to sue?

    Are the judge including Washington top authorities intellectually corrupt à la néo-con?

    Any clue?

  12. john bougearel

    In other news today, Ken Lewis made an insider purchase of roughly $1m of BAC stock. The vote of confidence from Kenny in his own firms outlook increased investor confidence generally, and voila, BAC’s stock price rallied roughly 30% today and the financial sector as a whole roughly 15%.

    Now, we know Kennie probably bought his insolvent stock with govt funded compensation, so this is no loss to him. But how easily the mislead public is in following a false signal.

    Now, after the stock market declines more than 50%, mkt participants had better leave room for false signals, but this flimsy fabrication makes me sick. Moreover, it just goes to show us that speculation has not been fully wrung out. How easily the herds are misled. And while we may well rally to the upside in a surprising fashion, let me be clear on one point: this is a signal animal spirits are alive and well, and that does not bode well for a long term bottom. An intermediate bottom, yes, long term, hell no!

    Did I say I was pissed yet again? Well color me pissed.

  13. doc holiday

    From the newsbox; Financial companies must receive another $1 trillion of equity capital before stocks can stage a sustained recovery, said Amit Rajpal, an asset manager at London- based hedge fund firm Marshall Wace LLP.

    Companies including Citigroup Inc., Wells Fargo & Co. and Bank of America Corp. still need $50 billion each of common equity, said Rajpal, 35, a former global financials research head at Morgan Stanley. He made the assessment before the U.S. government on Jan. 16 said it would invest $20 billion in Bank of America and guarantee another $118 billion of its assets.

    We need more rewards and bonuses please…

  14. john bougearel


    You are right on track with your disgorgement trail. Follow the disgorgement trail. Who cares if it not punitive, lets just get the money back to the taxpayer, crimeny.

    Hu Flung Pu: stick around my friend, with a moniker like that, you don’t have to post anything after that, just leave your moniker to know that you were here and that you were disgusted.

    And Geithner, bite me in the arsener, tells us “we’re at the beginning of this process of repairing the system, not close to the end.” He committed to “much more substantial action” on a “very dramatic scale.”

    Let me just say for the record, your substantial and dramatic action to date to repairing a flawed financial system will only perpetuate and worsens the flawed financial system. Are you all insane up there on the hill and at the Fed? Wake up, McFly.

    When you eed-iots on the hill start talk about reforming the system instead of saving or reparing the said zombie maybe we will stop bitching and start listening.

  15. john bougearel

    Doc, By your dumbass calculation, based on this year’s P/E and EPS, BAC is worth $5.09 and only retarded morons would speculate on this junk —

    They just bought that junk and bid it up 30% today above your $5 calculation to close at 6.68. Want to bet what the morons do in the next 6 months?

  16. Anonymous

    Merrill had about 60,000 employees in December. If the bonuses distributed were 4 billion dollars that makes 67k per person.

    Now assume 5,000 of the broker army actually got bonuses of 300k, which sounds about right for top performers.
    That means the remaining 55,000 employees have around 45k in bonus.
    That doesn’t look that horribly astronomical anymore does it.

  17. Anonymous

    “Now assume 5,000 of the broker army actually got bonuses of 300k, which sounds about right for top performers.
    That means the remaining 55,000 employees have around 45k in bonus.
    That doesn’t look that horribly astronomical anymore does it.”

    Hell yes it does. I dont care if its 100k employees each getting a gift certificate for a happy meal at McDonalds – the money is indirectly coming from the taxpayers. Sure, it’s only 4 billion – this kind of screwed up thinking is what has this country in such a state of chaos. It’s obvious that Wall Street’s sense of entitlement has not been sufficiently tempered. We will be turning the corner when stories like this are no more, and it will happen soon.

  18. Anonymous

    If you bail them out, they will pay themselves. I never expected anything else. The big surprise to me was when they were bailed out and not let go. as they should have been

  19. Anonymous

    Re: Ken Lewis’s insider purchase… it’s worth noting (and laughing about) how a portion of the purchase was of preferred stock. Confidence, but not stupidity…

  20. Anonymous

    > That doesn't look that horribly astronomical anymore does it.

    This demonstrates the root of the problem.
    Sociopaths are in charge, and are not capable of understanding why the rest of us think this
    is blatant looting of OPM.

    We're seriously overdue for a tea party.

  21. Anonymous

    This is revealed on a day that BlackRock partly owed (49 percent) by Merrill Lynch announces profit falls of 84 percent. Perhaps people are beginning to realise that all concepts of fair play or rules are being ignored as some are riding roughshod over the economic welfare of the country. What is particularly disturbing is that the government so far appears to make no attempts to reign in this behaviour. Take GM, who today we are told will get a delayed 5.4 billion bailout payment despite news that GM have failed to meet the conditions the government set for them to get bailout money. I guess most understand that we need to bailout and why but why keep top management who fail to meet any target they are set. The real crime was allowing these peoples lives to become so devoid from the lives of everyday people that they have lost all empathy with those around them.

  22. Anonymous

    I am not suprised. Once we started down the bailout slope the purpose of the actors was clear, outright thievery on a massive scale like the military industrial sector.

    We are going to have to nationalize more than the banks to straighten this mess out. The sooner we start the sooner we will be done with the mess and the smaller it will be.

  23. Anonymous

    Hunt these greedy bastards down, drag them out in the streets and give’em the beat down. It’s the only way.

  24. Anonymous

    4 bil for failure

    Have you any idea what 4 bil will do for the food banks and homeless shelters in this country?

    You need to send your morality in for a tune up.

  25. Anonymous

    They know there will be blood. This is just pocket change for their private militia, and believe me, they are preparing.

  26. Anonymous

    The American public just simply does not care. This will continue until people do something about it…and i have a feeling that is a VERY long time away. Obama’s Cabinet appointments leave me with little hope.

  27. Anonymous

    Ever since the beginning of bailout mania it has been like a bad dream that I can’t wake from. Non-stop revelations of corruption and greed and no one will do anything about it except further reward the guilty parties. Obama failed to deliver the frank honesty and tough talk of FDR’s innaugural, further dimming hopes of meaningful change. I fear civil life as we and our parents and grandparents knew it may well be wrapping up as we descend into unfettered oligarchic arrangements.

    Abre los ojos
    Abre los ojos
    Abre los ojos

  28. Stuart

    The markets will continue to take as investors confidence returns. BS like this just make it worse. If Obama wants to make a difference, he will somehow overturn this. That will send a huge message. Thain and the rest are utter sleazebags that need to take up residence in Juarez, Mexico.

  29. urbandigs

    “Merrill had about 60,000 employees in December. If the bonuses distributed were 4 billion dollars that makes 67k per person.

    Now assume 5,000 of the broker army actually got bonuses of 300k, which sounds about right for top performers.
    That means the remaining 55,000 employees have around 45k in bonus.
    That doesn’t look that horribly astronomical anymore does it.”

    ARE YOU KIDDING? They shouldnt have had that many employees to begin with and since they did, management should have had the proper risk controls in place to avoid a shotgun marraige or FAIL scenario in the first place!

    Fact is, if there was no shotgun marraige backstopped by taxpayer rescue dollars, the firm would have FAILED, and the dirty work of job contraction and no bonuses would have occurred!

    We live in a society that fears bankruptcy for large corporations. So, build a company as big as possible and your in the clear! Sweet, great message. No moral hazard there.

    The longer this BS goes on, the longer zombification will take hold and a lost decade looks more and more likely!

    What else dont we know?

  30. Guttersnipe

    These payments have not been bonuses (i.e. performance based) for quite some time. They have simply become executive perks, entitlements if you will, which are deemed to be owed simply for being the seatholder of the position. A complete moral, ethical, and financial travesty… comparable to Congress voting its own pay increases.

  31. Anonymous

    Why is this a surprise to anyone? The government is involved and when that happens all accountability goes out the window. They’re not spending their own money it’s the tax payer’s money! I know that the situation is bad enough that government help is needed, but unfortunately everyone has to realize that wasted money is going to be a side effect.

  32. Greg

    I think it’s possible the big loss Merrill reported in the quarter was because they wrote cds’s on Lehman. If true, think about it…Thain’s praying the gov’t bails out Lehman, when they don’t, he immediately hits the BAC bid, not disclosing this diasterous event to BAC.
    And where are all the other huge losses reported for writing Lehman CDS’s…who has reported the huge gains on the other side of the trade?

  33. Anonymous

    This is should really all be leading to a taxpayer revolt.

    How can struggling citizens be expected to pay taxes when those taxes are just handed to crooks like these?

  34. Anonymous

    It’s unbelievable that no one on the Hill is even talking about this. They beat on the auto manufacturers (justifiably) for taking a private jet to DC… how about beating on the financial institutions for a while?

    Bah, pointless exercise though. All of these people already got their money, and there are no clawbacks here.

  35. doc holiday

    The chief executive of a Standard & Poor's 500 company made, on average, $14.2 million in total compensation in 2007.

    The average salary of a professional football player in 2006 varied with experience and talent. The minimum salary of a rookie is $250,000 and the minimum of a veteran player is $750,000. However if you are a franchise player you are paid millions of dollars. In 2001 Peyton Manning of the Indianapolis Colts was paid a base salary of $4,452,000 and in 2003 he was paid a base salary of $ 9,824,000.

    The Orioles and right fielder Nick Markakis (mar-KAY'-kihs) have finalized a 6-year, $66 million contract. Markakis hit a career-high .306 with 20 homers and 87 RBIs for the Orioles last season, his third in the majors.

    Rex Ryan replaces Eric Mangini (man-JEE'-nee), who was shown the door after a late-season collapse cost the Jets a playoff berth. Ryan has signed a 4-year deal that's reportedly worth $11.6 million.

    Philadelphia Phillies outfielder Jayson Werth is close to signing a contract. A person familiar with the agreement tells The Associated Press the two sides have reached a preliminary agreement on a $10 million, 2-year contract, pending a physical.

    >> We have a society in full decay, from sports heros to banking pirates and no one is saying enough is enough! Obama should take a page out of Nixon's book and freeze wages and then make every CEO that was involved in TARP give back every dime — or go to jail!

    Re: August 15, 1971. In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary.

    Yah know what… I also think we need to stop all lotto games, just because they provide opportunities for too many people to waste too much money, so that a few lucky people can be enriched — lotto's send the wrong message to society. The message needs to be that you will have to work your ass off to make money and those that make a lot of money, damn well better do something amazing to earn it.

    I say tax the living crap out of these people that want to take the most — if your a football player that makes $12 million, you should be taxed 80% and give the majority of your wealth back to the government, where it can go into programs that help people that don't have fuc-ing health insurance — or your head goes on a pike!

    We need heads on pikes and a return to discipline and control — accountability and reality!

  36. john bougearel

    Thain, who sold Merrill to Bank of America, will leave the firm “immediately,” CNBC reported. The agreement is by “mutual agreement,” CNBC said.

  37. Eric L. Prentis

    WALL STREET CROOKS. Merrill gets a government bailout worth billions then posts a 4th quarter 2008 $15 billon dollar loss, yet pays out, a month early, 94% of the amount of last year’s employee bonuses when Merrill was profitable. Taxpayers are getting royally screwed and our politicians, Schumer/Dodd/Frank, let it happen without so much as a peep. The slimy-on-the-take politicians work for the financial ruling class, that much is now certain.

  38. doc holiday

    Just look what TARP can buy, in addition to extra compensation and bonuses:

    Area Rug $87,784
    Mahogany Pedestal Table $25,713
    19th Century Credenza $68,179
    Pendant Light Furniture $19,751
    4 Pairs of Curtains $28,091
    Pair of Guest Chairs $87,784
    George IV Chair $18,468
    6 Wall Sconces $2,741
    Parchment Waste Can $1,405
    Roman Shade Fabric $10,967
    Roman Shades $7,315
    Coffee Table $5,852
    Commode on Legs $35,115

    And, people like this that have ripped off tax payers are going to get more and more and more and if Obama turns a blind eye to this corruption, he might as well resign this week and not look like a pirate idiot!

  39. Anonymous

    In the House, Republicans hold 178 seats, meaning they need a net gain of 40 seats to take back majority control. In the Senate, Republicans hold just 41 of the 100 seats.
    If that weren’t daunting enough, the public gives especially harsh marks to congressional Republicans.
    Their job approval rating is 25 percent — the lowest recorded by the Gallup polling agency. That’s lower even than Bush’s. His approval was 29 percent in the Gallup poll released Dec. 16. If there was any good news for Republicans in the poll, it would be the public only gives congressional Democrats a 37 percent approval rating.

  40. fresno dan

    “Kenneth D. Lewis has emerged as a critical force for stability in tumultuous economic times.
    A clear voice in policy debates, Mr. Lewis stood and made the convincing case last month when limits on executive compensation threatened the consensus behind the Treasury Department’s plan to invest capital in financial firms…”

    Not quite as good as the quote I read once about Hitler, “he loved children and was kind to animals” but in the same vein…

  41. Invisigoth

    $4 billion would be enough to pay off 40,000 mortgages @100K each, or employ 80,000 workers for the median 50K income for a year, or supply nearly 1 billion pounds of food for foodbanks in America.
    This ripoff is so eggregious! I’d say to Obama, don’t close Gitmo, we got a few people to rendition over there from Wall St. Where is the pitbull IRS to harangue these thieves!? New prediction: 2009 is the year you see board meetings turn into hostage situations from angry investors/little guys gettting crushed. When a man loses everything, he then has nothing to lose. That is when the true danger begins. Time for a new Pecora commission.

  42. cm202bc

    @ doc holliday
    “Yah know what… I also think we need to stop all lotto games, just because they provide opportunities for too many people to waste too much money, so that a few lucky people can be enriched — lotto’s send the wrong message to society.”

    My state, and I think may others, uses those funds to support their education expenditures. The results of discontinuing state lottos would only exacerbate state budget shortfalls. That said, it is pitiful to think that, given the demographic nature of lotto participants the games represent yet another regressive tax, with little of the revenue returned to services in support of the people that produce it.

  43. cm202bc

    Regarding the subject of the post, I think one of the greatest faults of the American Patrician class is that they seem to have forgotten that they are indeed a Patrician class. While I reject most comparisons of the US with the Roman Empire, one that does seem valid to me is the danger of Patrician excess in a highly militarized society. It’s one thing to steal from the plebes when they aren’t paying attention, but when their attention is focused a rational Patrician makes a show of working for the public good. Then again, they didn’t have private jets in those days, so political unrest probably isn’t so threatening a concept now.

  44. Anonymous

    Funny! I’m sure Dick fuld is envious becuase he tried the same thing, but could get paid before Leahman collapsed.

    I’m sure Angelo Mozillo would approve, becuase he esentially did the same thing by inflating countrywides stock before deciding to retire.

    Got to love being one of the select guys who doesn’t have to play by the rules.

  45. Anonymous

    It was mortifying to me in November of last year when a friend whose husband is in commodities at Merrill mentioned his pay was only down 2/3 from last year. How could he accept it, when it comes out of the mouths of Head Start children, food stamp recipients, veterans, the disabled, the poor elderly. Get it back!

  46. Anonymous

    It seems that the “entitlement” feeling has finally trickled up from the welfare state that we’ve created to the financial sector. Until we adopt a “work for pay” attitude instead of a “pay for sitting on your ass” attitude, we can expect more of the same!

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