Friday, July 31, 2009

Bonus Bonanza Furor

The outrage over last year's bonus pools for the nine largest banks is set to become the next big issue for politicians and, possibly, regulators. The fact that $33bn worth of bonuses was paid out at the same time these banks were close to tipping financial markets into the abyss was not lost on NY Attorney General Andrew Cuomo. His report, released yesterday, expresses his bewilderment that bank employees are rewarded so generously even in bad times. He said: "One thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees." Goldman Sachs, JPMorgan and Morgan Stanley actually paid bonuses that equated to MORE than their net income. Now every financial journalist knows that banks have to pay salaries and bonuses that are similar to their competitors because if they don't they will lose 'talent', blah blah blah. What the nine banks have done, however, with their profligate flaunting of compensation is to ensure that there will be heavy-handed regulation. Their shareholders will crack down on them so hard that they will wish they'd never heard the word bonus. Why, after all, would anyone invest in a bank that pays out more in compensation than it MAKES? I wouldn't. The end result will be that the 'talent', if it has any sense, will move to Switzerland or Dubai or Singapore to continue to get the fantastic bonuses. Plus they'll benefit from lower taxes. NYC and London could be decimated.

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