N.Y. Attorney General Blisters Banks in Scathing Report to Congress

By Staff Report

Jul. 31, 2009

Citigroup and Merrill Lynch together posted $54 billion in losses last year.

To avoid total collapse, they received $55 billion in federal bailout money. Nonetheless, the two ailing firms awarded nearly $9 billion in bonuses.

Those are just some of the findings in a blistering report by New York state Attorney General Andrew Cuomo titled “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture.”

“When the banks did well, their employees were paid well,” Cuomo wrote in the report, which he sent to Congress on Thursday, July 30. “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.”

Although banks claim to link pay to performance, he accused the firms of failing “to follow any objective or consistent principles” in setting pay, which he called “simply a one-way ratchet up. … Large payouts became a cultural expectation at banks and a source of competition among the firms.”

Cuomo’s report comes two days after the House Financial Services Committee passed an executive compensation reform bill that would, among other things, give shareholders the right to vote on companies’ pay practices.

Among Cuomo’s findings: Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. paid out a combined $18 billion in bonuses last year, nearly double their net income of $9.6 billion. At Bank of America, compensation payments held steady last year at $18 billion, even as net income fell to $4 billion from $14 billion. Similarly, compensation levels at Citigroup were little changed last year at more than $30 billion, even as the bank plunged deeply into the red.

Cuomo’s report includes an excerpt from testimony taken by his office from the former head of Merrill Lynch’s compensation committee, John Finnegan, which the attorney general said illustrates how banks rationalized supersized pay in light of dismal results. Merrill was acquired late last year by Bank of America.

“I think we thought it would jeopardize the long-term health of the firm … if we didn’t pay people who performed and contributed for their performance in the face of large losses on legacy assets in some units,” the Merrill director said, according to the report.

Officials at Bank of America, Citigroup and Morgan Stanley didn’t respond immediately to requests for comment. JPMorgan and Goldman Sachs declined to comment.

“The rationalization of the compensation and bonus system must be accomplished now,” Cuomo concluded. He said the private sector is the “appropriate” place for such reform, but added that the government should get involved if banks do not adopt enough changes on their own.

Filed by Aaron Elstein of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail

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