NEW YORK (Reuters) –
Morgan Stanley (MS.N) Chief Executive John Mack is forgoing a year-end bonus for the third straight year, he said in a memo obtained by Reuters, putting pressure on other Wall Street CEOs to follow suit.
Mack is the second bank chief executive not to receive a bonus, but the first to forgo it voluntarily.
Rising bonuses have drawn criticism from politicians and others, who complain Wall Street's losses seem to be socialized while its profits are privatized.
Mack seemed to acknowledge that criticism in his memo: "Given this unprecedented environment and the extraordinary financial support governments provided to our industry ... I recommended to the Compensation Committee of the Board last week that I receive no year-end bonus," the memo said.
Investors said other bank chief executives are likely to follow Mack's lead in the coming weeks.
"It's good PR -- a lot of constituencies are very sensitive to the amount of money that the industry lost and the fact that the whole industry was bailed out," said Thomas Russo, partner and portfolio manager at Gardner Russo & Gardner.
Mack said Wall Street must recognize that the world has changed since the financial crisis began in 2007 and triggered more than $1 trillion of credit losses and writedowns globally.
"Some old ways of doing business cannot continue," Mack wrote.
Larry Summers, U.S. President Barack Obama's top economic adviser, said all financial firms owe their survival to taxpayers for the bailout.
"There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system," Summers said while speaking at a financial markets conference in New York.
A senior official at the U.S. Treasury applauded the decision on Mack's bonus.
"We welcome concrete action that acknowledges the significant role that government and taxpayers played in stabilizing the markets and the banks," the official said.
Mack is stepping down as CEO at the end of the year, but will remain chairman. James Gorman will take over as CEO at the start of next year.
The last bonus granted to Mack was in 2006, when he was given restricted shares that at the time were worth about $36.2 million.
Wall Street bonuses are broadly expected to rise about 40 percent in 2009, according to recruiting firm Options Group, as trading revenues approach record levels.
Morgan Stanley is continuing to change its methods for determining compensation, including paying sales and trading teams based in part on the risk they took on, Mack said in his note to employees.
Morgan Stanley has set aside $10.87 billion for compensation and benefits for the first three quarters of 2009, down from $11.97 billion in the same period last year.
That amounts to an average of roughly $175,000 per employee, about a third as much as Goldman Sachs has set aside.
Mack also called for reforms to the financial system, including centrally clearing or reporting derivatives positions, and regulators having the authority to wind down a firm that mismanages its risk.
CNBC reported that Morgan Stanley's board had wanted to give Mack a bonus.
Mack's announcement that he is forgoing a bonus comes after Goldman Sachs Group Inc (GS.N) said it planned to pay top managers their bonuses in stock rather than cash.
Bank of America Corp's (BAC.N) departing chief executive, Kenneth Lewis, was slated to receive a $1.5 million salary for 2009, but at the request of U.S. pay czar Kenneth Feinberg, he will receive neither a salary nor a bonus for this year.
(Reporting by Dan Wilchins. Additional reporting by Steve Eder in New York and David Lawder in Washington; editing by Lisa Von Ahn, Phil Berlowitz and Steve Orlofsky)
RICHMOND, Va. – Virginia's hated local car tax would be replaced with a $2 billion-a-year income tax increase under the new budget Gov. Timothy M. Kaine presented Friday.
The tax proposal from the Democratic governor who leaves office next month accompanied a budget that prescribes about $1.2 billion in spending cuts in a bid to reconcile a $3.6 billion state revenue shortfall for 2010 through 2012.
The plan was on an immediate collision course with incoming Republican Gov. Bob McDonnell, who has pledged to reject any general tax increase, and an anti-tax GOP House majority strengthened by last month's elections.
A defiant Kaine derided the 12-year-old Republican-born car tax relief system as "a $950 million folly," and accused GOP lawmakers of protecting it only for the sake of political expedience.
"While some of you might disagree with this proposal in your public statements, your actions have told the public you do not place a high priority on car tax relief," he said.
House Speaker William J. Howell, R-Stafford, sat mute amid the General Assembly's budget writing panels, staring wide-eyed as Kaine advocated dismantling the 12-year-old GOP car tax cut.
"I think it's unrealistic to even propose it. It's got no chance of passing," Howell said afterward.
Friday's cuts were the fifth that Kaine has proposed since July 2008. And Kaine estimates that the total budget gap will reach $4.2 billion by 2012 if the expected growth in Medicaid costs and the end of federal stimulus funding beyond 2011 are factored in.
Besides a budget bill that deeply cuts funding for state-supported colleges, mental health services and public safety, Kaine is preparing a separate bill that would phase in a 1 percent income tax increase over two years. It would be the first income tax increase since 1972.
The massive income tax increase generates about $400 million a year more than the $1.6 billion the car tax now raises for localities. Local governments would also receive additional revenue from the income tax.
The car tax was so broadly loathed in Virginia that Republican Jim Gilmore's promise to phase it out got him elected governor in 1997.
The tax, applied to the value of personal cars and pickup trucks, could run into hundreds of dollars annually in some jurisdictions. The General Assembly exempted up to $20,000 of a vehicle's value from taxation and agreed to reimburse cities and counties dollar-for-dollar for revenues lost as the tax was gradually rolled back.
But as annual reimbursement costs spiraled toward $1 billion, the legislature voted in 2004 to cap total state reimbursements to local governments at $950 million a year.
Kaine belittled the complicated scheme that has bedeviled legislators for years.
"Three-fourths of the members of (the General Assembly) know that 'No Car Tax' is ridiculous. Why not call it what it is and put it out there," Kaine told reporters later.
Kaine's budget eliminates reimbursements and any obligation to pay taxes on cars, no matter their value. Income tax legislation would provide local governments all of that money, perhaps more.
McDonnell questioned the tax increase.
"It is bad economic policy to increase taxes on Virginians, especially as they continue to struggle with the worst economy in generations," he said.
The cuts reduce the biennial general fund budget to about $30 billion, about the size of the budget six years earlier. Kaine had already been forced to cut $7 billion from the budget the past 18 months.
Funding for state-supported institutions of higher education would be cut by 26 percent over the next few years, a move certain to provoke sharp increases in tuition.
Public school districts would see deeper cuts in state support for positions such as secretaries and teachers' aides.
Kitty Boitnott, president of the 60,000-member Virginia Education Association, gasped as Kaine announced the public school cuts. Capping support for non-teaching personnel would mean job losses, she said.
The state would cut about $12 million for mental health crisis services, just two years after mental health budgets had been increased by $42 million in response to the April 2007 shooting deaths of 32 people at Virginia Tech by a disturbed student.
Sheriffs and other local constitutional officers would lose about $270.5 million over the two years, and local police department funding would be cut by about $73 million.
John Jones of the Virginia Sheriff's Association said sheriffs are reeling from cuts Kaine made in September. Some can't provide 24-hour patrols, he said.
"This assaults that core service; we can't do it with these cuts," Jones said.
State employees would forgo pay raises for two years and be required to make payments toward their own pensions for the first time since 1983. The retirement age for new hires would jump from age 50 to 55, and the state would eliminate 664 jobs.
"The governor's proposals today are a gut shot to state employees where death is long, lingering and excruciatingly painful," said Ron Jordan of the Virginia Governmental Employees Association.
The tax increase is not the only effort to increase revenue. Kaine proposed ending the dealer discount, a sliver of the state sales tax retailers keep for collecting and remitting the tax, adding $60 million to $70 million annually.
He proposed leasing 1,000 state prison beds to house out-of-state inmates to raise $19.8 million.
And, if approved, the price of a bottle of liquor will increase by 2 percent at Virginia's state-owned liquor stores.
WASHINGTON (Reuters) –
U.S. house prices rose in the third quarter, ending a two-year downward trend, and the housing market was now slightly undervalued, an independent survey showed on Friday.
IHS Global Insight's quarterly housing valuation survey showed prices were up 0.2 percent from the second quarter, led by a 2.1 percent rise in home prices in California.
A separate Federal Housing Finance Agency showed house prices rose 0.9 percent year-over-year in the July-September period. That was the first advance since the second quarter of 2007 when the housing market slide started.
The surveys are the latest evidence that the housing market, the main trigger of the worst U.S. recession in 70 years, is stabilizing. Home sales have been trending higher, boosted by low mortgage rates and prices, as well as a popular tax credit for first-time buyers.
The IHS Global Insight survey, which covered 330 metropolitan areas, showed prices rose in 169 markets and fell in the remaining 161. For the first time since the survey started in 2005, there were no metropolitan areas where prices were deemed to be "extremely" overvalued.
"For the nation as a whole, the housing market is now slightly undervalued, 8.6 percent when weighted by market value and 10.1 percent when weighted by housing units," IHS Global Insight said.
(Reporting by Lucia Mutikani; Editing by James Dalgleish)