Sunday, January 25, 2009

Ethics & Merrill Lynch executive remuneration

The real bonuses and the phoney profits have been a feature of Merrill Lynch's US operations.

But ex CEO John Thain's actions seem to me to show the moral bankruptcy of Wall Street.  Merrill Lynch paid out $15 billion to executives in 2008 which just matched the controversial 4th quarter losses that Bank of America (its purchaser) have complained they were unaware of. Moreover, while Bank of America begged Washington for $20 billion more in handouts, Thain approved an accelerated bonus pool of $4 billion for his executives. 

In addition while, in the scheme of things it is trivial, one cannot help wondering how Thain could have approved $1.2 million of shareholder monies for redecorating his office.  I think Thain should go to jail.  The argument that Thain sold Merrill Lynch to Bank of America for $44 billion and therefore 'saved the business' seems questionable to me.  This seems, again, to have been a deception - the $50 billion dollar deal from hell.

I've read for years that executives have to be paid absolutely huge salaries to prevent them leaving.  It was 'competition' working.  But what's the point of retaining executives who drive firms into bankruptcy and who require bonuses that exceed earnings.

What happened to ethics in all this? Do ethical issues become redundant when you 'allign' executive interests with those of shareholders by suitably cute incentive contracts?

The appalling behaviour of prominent business executives threatens our prosperity by undermining the basic institutions of capitalism.


conrad said...

Yep, and they still want to save Bank of America, despite this purchase coming *after* the current crisis started. I think they should just let all these these old corrupt guys go broke and spend the money starting up a new banking system.

civitas said...

It's more than that, harry. People like Barney Frank should also ne jailed. Here'e the latest...

That $700 billion TARP (Troubled Asset Relief Program) bill was in part simply a variation on congressional pork - except this time the recipients were banks with friends in high places.

One of those powerful friends was Rep. Barney Frank (D-Newton), chairman of the House Financial Services Committee. And one of the recipients of a $12 million infusion of federal cash was the troubled OneUnited Bank in Boston - a bank that had already been accused of “unsafe and unsound banking practices.” Its CEO, Kevin Cohee had also been criticized by regulators for “excessive” pay that included a Porsche.

Frank admits he included language in the TARP legislation specifically designed to bail out OneUnited. He also acknowledges contacting officials at the Treasury Department about the bank’s bailout application.

hc said...

The post you cite is here.

Its interesting. I think there are criticisms too that the fiscal expansion is targeting partisan political support.

civitas said...

I cited the source harry, although not with a link.

Politicians are right in bed with businesses leaders. And they are helping them steal money from taxpayers. If Thain should be in jail, then so should Frank. And whomever decided that more would be spent on this inauguration than any in the past should also be in jail. Frank was a huge part of the Freddie Mac, Fanny Ma debacle.

jc said...

shouldn't the real question be:

Where are the boards?

jc said...

Wall street has nothing on this under our very noses:,28124,24954284-5013408,00.html

Reward for dismal returns

LAST calender year, Hastings Diversified Fund posted a negative return of 18 per cent against a market return of negative 38 per cent. The difference produced an outperformance of 20 per cent and was enough in this case to trigger the clause that gave the management circa $15 million in stock as an outperformance fee.

The manager was the Westpac-controlled Hastings, which last year earned a "success" fee for the first time despite the dismal returns.

Since inception, the company has provided a risk-free return of 4.1 per cent a year, which is not stellar.

Some argue the independent directors should have stepped in and said clearly it wasn't meant to be this way.

But sadly, while on paper it doesn't look good, the fact is all of the above and the payment in stock -- not cash -- was fully outlined in the prospectus, so everyone could understand how the game worked.

The error here lies with the people who agreed with the performance structure, which granted success fees for losing money, but Hastings is by no means the only one in this class.

The revolution has arrived and more so than ever the power is in the hands of the providers of capital, which means they are responsible for drawing up more appropriate remuneration.

This should start by only awarding a performance fee when returns are positive.

I chewed the shit out the chairman and arranging a shareholder revolt against this.

I bought the stock low enough not to effect so much, but they're not getting away with it and if necessary I'll sure the entire board.

Out of Ashes said...

The POX on all these lying, cheating SOB's. Time has come to take out the "torches and pitch forks". Please there is no rational for what these people have done and CONTINUE to do. Make the Merrill Lynch executives who received ALL these bonuses PAY THEM BACK!!! For God's sake what is so bloody hard about that?!!!! The only "change" we are and most likely continue to experience is a "different way" of doing the SAME bloody thing!!!!!! Bend over folks and grab your ankles because it is going to be another bumpy ride!!!!!!