Citigroup and Merrill Lynch, each of which lost more than $27 billion last year and received taxpayer-funded bailouts from the federal government, paid out billions of dollars in year-end bonuses, a report released Thursday by New York Attorney General Andrew M. Cuomo reveals.
Although Citicorp lost $27.7 billion in 2008, its bonus pool totaled $5.33 billion, the study shows. Nearly 750 Citigroup employees received at least $1 million in bonus money last year. The top four recipients received $44 million in bonuses.
In 2008, Citigroup received $45 billion in federal assistance under the Troubled Asset Relief Program (TARP). In November, the Treasury Department and other government organizations also agreed to backstop $306 billion in questionable Citigroup assets.
Merrill Lynch, which was purchased by Bank of America at the end of last year, lost $27.6 billion in 2008. Yet, it paid out $3.6 billion in bonuses. Nearly 700 employees each received at least $1 million. The top four recipients shared $121 million in bonuses last year, according to the study, which is titled, “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture.”
In October, the Treasury Department authorized $10 billion in TARP money for Merrill Lynch. The money was never drawn down by Merrill Lynch; instead, it was given to Bank of America after the bank purchased the troubled brokerage firm. Bank of America, which paid $3.33 billion in bonuses last year, has received an additional $35 billion in TARP funding. In addition, Treasury and other government organizations have agreed to backstop $118 billion in questionable assets, the vast majority of which were inherited from Merrill Lynch.
Neither Bank of America nor Citigroup has repaid its TARP loans.
“In describing their compensation programs, most banks emphasize the importance of tying pay to performance,” the report said. “Despite such claims,” the report concluded, “there is no clear rhyme or reason to the way banks compensate and reward their employees.”
When the banks did well, so, too, did their employees, the report said. When the banks did poorly, their employees were still paid well. “And when the banks did very poorly, the banks were bailed out by taxpayers and their employees were still paid well,” the report concluded, emphasizing the fact that Citigroup and Merrill Lynch paid a total of nearly $9 billion in bonuses in 2008 after losing a combined $55 billion.
Three other firms - Goldman Sachs, Morgan Stanley and J.P. Morgan Chase - had 2008 bonus payments that substantially exceeded their net incomes.
Goldman Sachs earned $2.3 billion last year and paid out $4.8 billion in bonuses, while receiving $10 billion in TARP funds. Morgan Stanley paid out nearly $4.5 billion in bonuses last year while earning a profit of $1.7 billion and receiving $10 billion in TARP money. J.P. Morgan Chase earned $5.6 billion in profits last year, paid out $8.7 billion in bonuses and received $25 billion in TARP funds.
Goldman, Morgan Stanley and J.P Morgan Chase have all paid back the TARP money they received last year.
Companies that continue to rely on TARP funds must adhere to government-imposed restrictions on compensation, including bonuses. Citigroup and Bank of America have until Aug. 13 to submit compensation plans to Kenneth Feinberg, the “pay czar” appointed by President Obama to oversee compensation policies of companies receiving federal assistance.
Citigroup recently said it would rebalance its compensation policies by reducing bonuses and raising salaries. The total would not change, only its mix. Recently, Andrew Hall, a top Citigroup trader, has been pressuring the bank to meet a 2009 compensation commitment that could top $100 million. The situation could lead to an early test with Mr. Feinberg.
During the first half of 2009, Goldman Sachs, which reported record second-quarter profits, set aside $11.4 billion for compensation. That’s enough to pay every employee nearly $800,000 for the year.
The giant insurance company, American International Group, which the government effectively took over in September, was not part of the report. However, AIG set off a firestorm in March after it paid $165 million in bonuses despite receiving more than $170 billion in government aid. Treasury Secretary Timothy F. Geithner announced in March that the government would recover the bonuses in full. Treasury did not respond to e-mail and phone messages seeking to learn the disposition of those funds.
Neither Bank of America nor Citigroup immediately returned phone calls seeking comment on Mr. Cuomo’s report.