Bank bonuses come under scrutiny in the US news
30 October 2008

Based on a Bloomberg report on 27 October on fallen US banks and investment firms awarding hefty bonuses to their top managment and other employees, US Representative Henry Waxman, chairman of the House Committee on 'Oversight and Government Reform', has sent a letter to nine banks demanding a detailed account of their expected bonuses and pay in the wake of these banks accepting $125 billion of taxpayers' money to bail them out.

Bloomberg had reported in an article on 27 October that Goldman Sachs, Merrill Lynch  and Morgan Stanley had collectively provisioned $20 billion for bonuses in spite of the financial crisis created by them and taking a part of the government bailout money, essentially the taxpayers' money.

In his letter to the nine banks Waxman pointed out that in the first nine months of the current year, they spent or kept aside $108 billion for pay and bonuses for employees, which is nearly the same as last year.

Waxman's missive has spurre New York Attorney General Andrew Cuomo in to shooting off his own letter also asking the boards of nine banks for detailed information regarding the allocation of bonus and warned that the banks could be prosecuted in New York if their bonus payments are considered illegal under New York law.

The letters by both Waxman and Cuomo were directed at Citigroup, Bank of America, Wells Fargo, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Bank of New York Mellon and State Street.

Goldman Sachs has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, and Morgan Stanley has $6.44 billion for bonuses, or $138,700 per person.

Both these firms are getting $10 billion each from the government's bailout fund.

Even some employees at Lehman Brothers, which declared the biggest bankruptcy in the US history last month, will get the same bonus they received last year.

Keeping in mind that most of the banks are using government bailout money, Cumo's letter states that ''the firms' expenditure and payments made in the absence of fair consideration by undercapitalised firms, may well violate New York Debtor and Creditor law 274 which deems such payments illegal fraudulent conveyances.''

"In particular, it is vital that you immediately provide us with any and all information concerning your firm's expected bonus pool for this year, both prior to and after you understood that the firm would be a recipient of taxpayer funds pursuant to the Troubled Asset Relief Program (TARP)," the letter stated. "Obviously, we will have grave concerns if your expected bonus pool has increased in any way as a result of your receipt or expected receipt of taxpayer funds from TARP."

The AG has asked for a description of all bonus pools anticipated for this year, including a description of the process by which the pools were or will be established; a description of the process by which the bonus pools will be allocated and distributed; a description of how, if at all the calculation and plans for allocation of the bonus pools have changed as a result of the firm's receipt of TARP funds; and for the years 2006 and 2007, a description of the bonuses awarded to employees receiving more than $250,000 in compensation.

"We believe that the board of directors is most appropriately positioned to respond to our requests as the firm's top management likely has a significant interest in the size of the bonus pools," Cuomo wrote. "In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation."

Cuomo has asked the banks to provide the information by 5 November.


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Bank bonuses come under scrutiny in the US