Bank of America Corp, the biggest US bank, expects to pay record bonuses to some investment bankers while keeping the overall cost of incentive compensation below previous years, according to a company spokesman.
“Some people will be getting very good bonuses because they had a very good year,” spokesman Robert Stickler said. The overall pool “will not be a record,” he said.
Compensation at financial institutions is under scrutiny after the US government bailed out companies including Citigroup Inc, American International Group Inc and Bank of America at the height of the financial crisis. Bank of America repaid $45 billion in US bank-rescue assistance in December, freeing the Charlotte, North Carolina-based lender from federal pay restrictions.
“It’s unfortunate timing both politically and socially to be paying out big bonuses,” said Shaun Springer, chief executive officer of Square Mile Services Ltd, which advises London financial firms on pay. “But banks have never paid a penny more in compensation than is demanded of them by the competition.”
Goldman Sachs Group Inc, the most profitable firm in Wall Street history, set aside $16.7 billion to pay employees for the first nine months of 2009. That’s up 46 per cent from a year earlier and just shy of the all-time high of $16.9 billion the New York-based firm allocated in the first three quarters of 2007.
Morgan Stanley, also based in New York, set aside $10.9 billion for compensation for the first three quarters of last year, down 9.2 per cent from the prior year.
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Bonuses paid to Merrill Lynch & Co executives before Bank of America completed its takeover of the brokerage in January 2009 prompted federal and state probes and a shareholder revolt that stripped Chief Executive Officer Kenneth D Lewis of the chairman’s title.
Lewis, 62, retired on December 31 and was replaced by Brian T Moynihan, 50. Bank of America’s management is determining the total earmarked for incentive-based compensation, Stickler said. The sum must get approval by the company’s board around the end of January, he said.
The Wall Street Journal reported on Bank of America’s bonus plans in its online edition yesterday. Incentive pay is based on individual, business unit and overall company performance, Stickler said.
Kenneth Feinberg, the US special master on executive compensation, said on January 6 that he’s disappointed he lacks authority to have greater influence over Wall Street pay.
“My jurisdiction is so narrow, and so circumscribed, that I have no real direct mandatory power over other Wall Street or other national companies,” Feinberg said in an interview with Bloomberg special contributor Judy Woodruff. The entire interview can be seen this weekend on Bloomberg Television’s “Conversations with Judy Woodruff,” airing January 8 at 6 pm New York time.
Feinberg, 64, in October ordered pay cuts averaging 50 per cent for the top 25 executives at Citigroup, Bank of America and five other companies that took US bailout money. The two banks repaid the funds last month, enabling them to leave Feinberg’s supervision.
Fees from Bank of America’s investment bank and capital markets businesses ranked second in 2009 among Wall Street firms, trailing only New York-based JPMorgan Chase & Co. Moynihan said on January 4 that the fees reflected the success of the Merrill Lynch takeover.
“Clearly investment banking at Bank of America had a pretty good year, so you’d expect year-end incentives would reflect that,” Stickler said.
Bank of America rose 54 cents, or 3.3 per cent, to $16.93 yesterday in New York Stock Exchange composite trading. The shares were little changed at $16.94 by 11:30 am in German trading.
Later this month, Bank of America as a whole may report its third loss in the past five quarters, amounting to 52 cents a share, according to the average estimate of 17 analysts surveyed by Bloomberg. Defaults on home loans, commercial real estate and credit cards have prompted the bank to charge off more than $25 billion through Sept. 30. Repaying funds to the Troubled Asset Relief Program may have reduced income available to common shareholders by $4.1 billion, the bank said last month.
Merrill reported a $27.6 billion loss in 2008, its last year as an independent company.