Tuesday, November 18, 2008

UBS Joins Goldman, Pressure On The Rest

IHT: UBS on Monday joined Goldman Sachs in saying its top executives would get no bonus this year, as public scrutiny of bankers' compensation intensifies amid the taxpayer rescue of the financial sector.

UBS said its chairman, Peter Kurer, chief executive, Marcel Rohner, and other members of the executive board would receive only their fixed salaries this year and that all other employees would have their 2008 bonuses reduced. The bank, based in Zurich, received a Swiss government bailout of about $60 billion in October after losing nearly $50 billion since the the credit crisis began last year.

UBS said that beginning next year, top executives would be paid according to a long-term compensation model that "rewards realized value creation and takes business risk into account." In profitable periods, the executives will be paid performance-based variable compensation, but in hard times, no bonus will be paid. In addition, it said, "a 'malus' can be deducted from bonus accounts" when performance merits.

UBS made the announcement a day after top executives at Goldman Sachs sent a request to the company's directors asking that they receive no bonus pay for their work in 2008, a company spokesman said. Their request was granted, he said.

The moves by UBS and Goldman Sachs turns up the heat on their competitors, including Morgan Stanley, to take similar action as they decide on year-end bonus figures in the coming weeks. Last month, Josef Ackermann, the chief executive of Deutsche Bank, announced that he would forgo his bonus this year as "a very personal sign of solidarity."

"We may see more of such bonus decisions at the top of the tree," said Andrew Oliver, managing director at Profile Search & Selection, an executive search firm in Hong Kong, on Monday.

The decision by Goldman Sachs could also ease political pressure and reduce adverse reaction to what is expected to be a bleak fourth-quarter earnings report in December, including perhaps the bank's first loss of the credit crisis. Goldman's bailout package includes some strictures on executive pay, but the industry does not view them as especially strong.

It comes after banks worldwide have been awarded or promised hundreds of billions of dollars in taxpayer bailouts. Numerous European officials, including President Nicolas Sarkozy of France and Angela Merkel, the German chancellor, have called for limits on bank executives' pay.

In the United States, public officials including the New York attorney general, Andrew Cuomo, and Representative Henry Waxman, a Democrat of California, have been warning banks not to use any taxpayer money to award bonuses to executives. Industry lobbyists and interest groups have also warned executives at the banks that any big pay numbers this year could generate a significant public backlash.

There is a widespread belief that the way Wall Street awarded bonuses in recent years helped feed the risky behavior that eventually created big losses on exotic debt securities and helped create the current crisis.

UBS acknowledged as much Monday, noting that a report it submitted in April to the Swiss Federal Banking Commission concluded that "disproportionately large risks" had been assumed within its investment bank and that the bonuses there, linked to earnings, "had not been sufficiently tied to the amount of assumed risk. In addition, the bonus payments were calculated based on short-term results, without sufficient appraisal of the quality or sustainability of those earnings."

Morgan Stanley and other banks are still formulating bonus figures. Morgan Stanley's chief executive, John Mack, took no bonus last year. Morgan Stanley, which took a loss in the fourth quarter last year but has been profitable all of this year, declined to comment Sunday. Morgan Stanley posted better results in the third quarter than Goldman Sachs.

In September, Goldman Sachs and Morgan Stanley transformed themselves into bank holding companies that take deposits, take less risk and are subject to more government oversight. That new structure may limit their ability to generate big profits, because they cannot use as much borrowed money to make big investment bets.

In the past several years, Goldman Sachs has posted some of the biggest profits and paid out some of the biggest bonuses in Wall Street history. The company's chief executive, Lloyd Blankfein, received a salary and bonus package last year worth $68.5 million.

Goldman Sachs paid its two co-presidents, Gary Cohn and Jon Winkelried, about $67.5 million each last year, more than most chief executives. All three will receive no bonuses this year.

Others forgoing bonuses at Goldman Sachs will include the chief financial officer, David Viniar, and the vice chairmen, J. Michael Evans, Michael Sherwood and John Weinberg.

p/s photos: Nok Ussanee Wattanathana

1 comment:

Richard Cranium said...

So, these bigwigs are taking some bitter medicine now. But its too little, too late.

It won't be long (another 15 years, perhaps?) when we are hit with another significantly more dangerous financial crisis.

These things do get fewer over time, but the scale gets more humongous each time.

The American CEOs don't have the incentive to be conservative, because they know they can get "too big to fail". Uncle Sam will just need to issue more T-bills and get dollars from other countries to fund these excesses.

What can we learn from this? Next time, just follow the damn stampeding crowd but have the foresight to get out before they do.

Yes, I know, its disingenuous.

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