Banks pay more bonus than earning

NEW YORK - WALL Street banks rescued in the 2008 financial crisis paid bonuses regardless of their performance, according to a report published on Thursday by New York Attorney General Andrew Cuomo.

The report says that some banks bailed out by the US government paid executives bonuses that totalled more than entire company profits last year.

'Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks' financial performance,' the report by Cuomo's office says.

Bonuses for Goldman Sachs, Morgan Stanley and JP Morgan Chase exceeded the banks' income, the report said. 'There is no clear rhyme or reason to the way banks compensate,' it said.

'The relationship between performance of the firms and bonuses varied immensely and the bonus system does not appear to have been tethered to any consistent principles.' The report, prepared over nine months in the aftermath of the 2008 financial meltdown, looks into banks' performance and practices.

The report says that in 2008 Goldman paid US$4.8 billion (S$6.93 billion) in bonuses, more than double its income of US$2.3 billion, while Morgan Stanley paid US$4.475 billion in bonuses and earned only US$1.7 billion.

Both banks received US$10 billion in emergency government funds.

JP Morgan, which received US$25 billion in bailout funds, earned US$5.6 billion and paid US$8.6 billion in bonuses.

Citigroup and Merrill Lynch each lost more than US$27 billion. They paid out US$5.33 billion and US$3.6 billion respectively in bonuses, according to the report.

'Other banks, like State Street and Bank of New York Mellon, paid bonuses that were more in line with their net income, which is certainly what one would expect in a difficult year like 2008,' the report said.

For example, State Street earned US$1.8 billion, paid bonuses of US$470 million, and received US$2 billion in US emergency funding.

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Less bonus, more pay

NEW YORK - JPMorgan Chase & Co's investment bankers will begin getting more of their pay in salary next year and less in bonuses as the bank shifts the weighting to remain competitive with rivals, a person familiar with the firm said.

A Bloomberg report said that the people affected are those who earn half or more of their total compensation in year-end bonuses, the source said, declining to be identified because pay matters are confidential.

It will be implemented next year, after details are announced at the end of this year. The bankers' total pay will not change because bonuses will be lowered.

JPMorgan, which is based in New York, is seeking to keep pace with rivals that boosted salaries amid restrictions on bonuses, and to make its compensation costs more predictable, Bloomberg reported.

Citigroup, Morgan Stanley and UBS have increased salaries for some employees. Citigroup will raise base pay by as much as 50 per cent.

Morgan Stanley said in May it will increase base pay for some executives, while UBS increased banker salaries by 50 per cent. JPMorgan's investment bank is having a record year, with revenue in the first half of US$15.7 billion (S$23 billion).

In the first six months of this year, the unit set aside US$6.01 billion for employees' compensation, equal to 38 per cent of revenue in the period.

According to Bloomberg, Goldman Sachs Group allocated US$11.4 billion, or 49 per cent of revenue, and Morgan Stanley put aside US$5.91 billion, or 71 per cent of the half-year revenue, for employee salaries, bonuses and benefits.

Investment banks have traditionally awarded a large portion of employees' compensation in the form of year-end bonuses tied to the performance of the firm and the individual.

More senior employees typically get a bigger percentage of their pay in the form of the year-end bonus.

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