Wall Street May Give Record Bonuses

From a horrified Wall Street Journal:

Big Pay Packages Return to Wall Street

Compensation on Track to Soar as Earnings Recover From Crisis; ‘Like It’s 2007 Again’

By AARON LUCCHETTI

JULY 2, 2009

Business is back on Wall Street. If the good times continue to roll, lofty pay packages may be set for a comeback as well.

Based on analysts’ earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal.

Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year, analysts predict. On a per-employee basis, payouts are expected to exceed last year’s average of $262,000. Howard Chen, an analyst at Credit Suisse, projects that the company’s average pay will come close to the $340,000 paid out by Morgan Stanley in fiscal 2007.

Some of the most lucrative pay packages are being offered in businesses that are improving, such as junk-bond trading. Jobs and pay remain iffy in areas like asset-backed securities where markets remain frozen. Russ Gerson, who runs an executive-recruiting firm that fills jobs on Wall Street, says it is too soon to tell if the strong results from securities firms in the first and second quarters will translate into huge paychecks at the end of the year. "All this euphoria about bonuses is based on the expectation that the business is returning to normal and that we will be in a robust environment again. If the fourth quarter is significantly down, I would expect bonuses not to recover too much from 2008 levels," he said.

Whether the higher payouts occur will depend on whether Wall Street earnings continue to recover from last year’s bruising losses on troubled assets and bad trading bets. If the market’s resilience since early March fades or a new crisis erupts, then securities firms would likely set aside far less to pay their employees than they did in this year’s first two quarters. Firms can set aside money for compensation and then decide not to pay it later.

Still, the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits. Repaying last year’s capital infusions from the government freed Goldman, Morgan Stanley and other big financial firms from curbs on compensation. Meanwhile, non-U.S. banks that didn’t get Troubled Asset Relief Program funds are becoming increasingly aggressive…

The recent increases in compensation reflect efforts by Wall Street executives to keep pay high enough to remain competitive but low enough to avoid the wrath of angry lawmakers. In at least one case, bank executives or their representatives have discussed pay with the Obama administration’s pay czar Kenneth Feinberg ahead of time, seeking to head off any public reprimand, according to a person familiar with the meetings.

A Treasury spokesman said Mr. Feinberg "has just begun his process for reviewing compensation at the seven firms receiving exceptional assistance; he has yet to approve any plans."

While Wall Street firms remain loath to cap pay levels, some are changing the mix of salary and bonus, partly in response to the financial crisis and added scrutiny from Washington. Some are boosting salaries and adding more stock, as well as so-called "clawback" provisions aimed at tying employee pay packages more closely to the long-term fortunes of their firms. As a rule, securities firms pay out about 50% of revenue in compensation…

Goldman, which has suffered less than most of its rivals since the credit crisis began in 2007, remains committed to using bonuses, increasingly from stock, to reward its top performers. Still, the firm is trying to carefully manage compensation, perks and other expenses that could be criticized…

How is this possible?

Obviously, Mr. Obama will have to re-double his efforts to kill Wall Street, and capitalism in general.

Paging Mr. Feinberg.

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