US banks pay out more in bonuses than profits

Some of the banks which were bailed out by the US taxpayer paid bonuses paid to executives that were in excess of net income in 2008, according to a scathing report by the office of New York Attorney General Andrew Cuomo released this afternoon.

Mr Cuomo, who has been investigating compensation paid by the banks since last October, said employee pay "has become unmoored from the banks’ financial performance.”

“There is no clear rhyme or reason to the way banks compensate and reward their employees,” said the report, which chimes with remarks by President Barack Obama's spokesman earlier this month.

President Obama does not believe that big pay packages are necessary to keep talented staff, the President's spokesman said.

Mr Cuomo's report recommends that firms should follow “a more principled” bonus system to make them less susceptible to poaching of their employees by other firms offering higher pay.

The report targeted Goldman Sachs, Morgan Stanley and JPMorgan Chase, saying that bonuses were “substantially greater” than the banks’ net income.

Goldman earned $2.3 billion, paid out $4.8 billion in bonuses and received $10 billion in TARP funding, while Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses and received $10 billion in TARP funding, and JP Morgan Chase earned $5.6 billion, paid $8.69 billion in bonuses and received $25 billion in TARP funding, according to the report

Since nine banks received a total of $125 billion last October in taxpayer money under the Troubled Asset Relief Program (TARP) to help them survive the financial crisis, Mr Cuomo has pressed them for details on billions of dollars paid toexecutives amid huge losses. He said his office studied historical financial filings and found that at many banks compensation increased in the 2003-2006 bull market years, but stayed at those stratospheric levels as the mortgage crisis and recession hit.

“Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.

“Bonuses and overall compensation did not vary significantly as profits diminished," he wrote.

Times Online

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