The news yesterday that the ECB, Fed and Bank of England were
working together to release $110 billion of funds to buck up the
markets for end of year and give the banking system confidence again
was great. Hopefully, this will work and we all will live happily ever
after … although the markets don’t believe it.
importantly and irreverently, $110 billion is about the same figure as
the 2007 bonus pool being paid out to all the bankers in the City and
Wall Street. This was a point made in yesterday’s Times by columnist Patrick Hosking. So it got me looking at the bonuses released so far.
Bearing in mind it’s early in the season, the first to announce is Lehman Brothers.
Lehman is expected to make a profit this year of around $4.13 billion.
That is after writing off $700 million of sub-prime losses, bringing
the total so far across all banks to around $77 billion of
mortgage-related securities losses declared to date.
by avoiding massive losses and making a profit, Lehman’s CEO Richard
Fuld gets a $35 million bonus and five other executives received a
share of $58 million, including $29 million for the bank’s President
Joe Gregory, and $9 million for the Vice Chairman Thomas Russo.
Goldman Sachs is one of the few other firms having a jolly old
Christmas as they also made a profit, even though they also reported
major losses of $1.7 billion for the sub-prime and $1.5 billion through
during the summer. Luckily, like Lehman, Goldman achieved their profit
through a successful hedging strategy to offset the mortgage related
losses, meaning that they came through the credit squeeze in far better
shape than their competition.
Goldman CEO Lloyd Blankfein is
therefore expected to be the highest paid banker this year, with a 30%
increase in pay, bringing his all-up package to be worth around $70
Meanwhile, the overall bonus pool for Goldman Sachs is
estimated to be over $20 billion for end of year, $3.5 billion more
than last year and equating to an average $600,000 for each member of
No wonder it’s the Joy of Sachs
with high spirits among the big swingers, with a Christmas bash where
staff have made videos taking the mickey out of various executives and
managers. I’d love to get hold of one of those vids, but apparently
they are all approved by the HR and PR departments beforehand. This is
because so many escape onto YouTube, and they wanted to avoid any damage to reputation.
most other banks it appears to be bad news however, with dark clouds
meaning that many are giving out zero bonuses and throwing staff into
the job queues.
For example, investment analysts expect profits
to be wiped out for many banks, such as Morgan Stanley and Bear
Stearns, and we should remember that Citi’s chucked out Chuck and
Merrill’s made O’Neal bail out. The news from Bank of America on
Wednesday that it expects disappointing fourth-quarter results and
provision for losses of at least $3.3 billion is just one of many to
The Financial Times summarised it all pretty well:
investment banking activity in November has also left analysts and
executives concerned. One senior Wall Street executive, who declined
to be identified by name, said: ‘The credit environment in November was
the worst we’ve seen in 20 years. There will be serious hits on
subprime and near-prime residential holdings and commercial
mortgage-backed securities portfolios. Everyone is going to take a
hit,’ he added."
This is why I’m told that UBS has capped all cash bonuses to a maximum $700,000 and is laying off 1,600 investment bankers.