Watchdog blasts Merrill bonuses
Merrill doled out 'gigantic' bonuses despite heavy losses, says Cuomo.
NEW YORK (CNNMoney.com) -- Merrill Lynch "secretly" doled out huge bonuses before reporting a huge quarterly loss and getting absorbed by Bank of America, according to New York state's attorney general.
"Merrill Lynch's decision to secretly and prematurely award approximately $3.6 billion in bonuses, and Bank of America's apparent complicity in it, raise serious and disturbing questions," Andrew Cuomo wrote in a letter to Rep. Barney Frank, D-Mass., chairman of the House Committee on Financial Services.
Top executives from Bank of America (BAC, Fortune 500) and Morgan Stanley, as well as Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Goldman Sachs (GS, Fortune 500), Bank of New York Mellon (BK, Fortune 500) and State Street (STT, Fortune 500), are appearing before the committee on Wednesday to explain how they spent the $165 billion they received from the government's Troubled Asset Relief Program, or TARP.
In his letter to Frank, Cuomo said Merrill gave bonuses of at least $1 million each to 696 employees, with a combined $121 million going to the top four recipients. The next four recipients were awarded a total of $62 million, and the next six received $66 million, he said. In all, the bonuses for 2008 totaled $3.6 billion.
"While more than 39,000 Merrill employees received bonuses from the pool, the vast majority of these funds were disproportionately distributed to a small number of individuals," wrote Cuomo. "Indeed, Merrill chose to make millionaires out of a select group of 700 employees."
The attorney general said that Merrill "awarded an even smaller group of top executives what can only be described as gigantic bonuses."
Cuomo also claimed Merrill handed out the bonuses, ahead of its federally-funded acquisition with Bank of America, which was announced in mid-September and closed by the end of the year.
"[I]t appears that, instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives," Cuomo wrote.
In a separate press conference Wednesday, Cuomo continued to criticize the awarding of bonuses at failed banks.
"How do you pay a CEO a performance bonus when by definition the institution has failed?" said Cuomo. "What did they do to deserve that money?"
Bank of America has received $45 billion in federal bailout funds, including $20 billion to support its takeover of Merrill. Bank of America reported a net loss of $1.79 billion for the fourth quarter -- not including a net loss reported by Merrill of $15.31 billion in the fourth quarter.
Bank of America spokesman Scott Silvestri that Merrill was "an independent company" when the bonuses were awarded.
"Bank of America did urge the bonuses be reduced, including those at the high end," Silvestri wrote. "Although we had a right of consultation, it was their ultimate decision to make."
Silvestri said the top executives for Bank of America "took no incentive compensation for 2008," with an 80% reduction for the "next level" of executives.