Archive for December, 2009

Pay czar poised for next wave of rulings (Reuters)

Thursday, December 10th, 2009 | Finance News

The Obama administration's pay czar plans to announce on Friday his next wave of rulings as bailout recipients struggle to get out from under his thumb.

Kenneth Feinberg has said these rulings will likely reduce pay for the 26th to 100th highest-paid employees at the six firms still under his authority.

Those firms, all of which received "exceptional assistance" from the taxpayers, are: Citigroup Inc (C.N), American International Group (AIG.N), General Motors Co (GM.UL), Chrysler, Chrysler Financial and GMAC.

Feinberg, a Washington lawyer appointed by Obama, slashed the pay of the top 25 employees at the companies under his jurisdiction in October, feeding concern that it would be difficult for the companies to retain or recruit talent.

The debate over what constitutes appropriate pay at financial firms was renewed this week as the United Kingdom slapped a 50 percent tax on bank bonuses and Goldman Sachs said its top executives will not receive cash bonuses for 2009.

Feinberg's next rulings will involve setting the "compensation structure" for the 26 through 100 highest-paid employees, but Feinberg told the Reuters Global Finance Summit last month the cutoff line is frequently blurred and that his rulings could affect many additional employees.

Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, said the stakes are not as high for this next wave of rulings, compared with the top 25 earners.

But he said there is still potential for the six firms to lose a lot of key employees if Feinberg's latest rulings are perceived as too harsh.

"Any time there's a pay freeze or something makes it less attractive to work there, it is usually the best people that leave because they are the most mobile," Elliott said.

Feinberg's control has caused significant friction with insurer AIG, where top executives, including CEO Robert Benmosche, have reportedly considered quitting because of the pay constraints.

The chief executive of Korn/Ferry International (KFY.N), the world's largest executive search firm, said this week that Wall Street may see an exodus to overseas rivals that have no limits on pay.

Gary Burnison said being a TARP firm involves uncertainty about government restrictions and could scare away potential employees.

For its part, Bank of America Corp (BAC.N) will not have to worry about Feinberg's rulings.

The bank, which openly griped about Feinberg's first wave of rulings, on Wednesday finished its repayment of $45 billion it received from the U.S. Treasury's Troubled Asset Relief Program (TARP), making it the first company to come out from under Feinberg's authority.

Feinberg told Reuters it was "very satisfying" to see Bank of America, the largest U.S. bank by assets, come out of TARP.

Citigroup, the last remaining bank under Feinberg's immediate purview, is racing to exit the program and is in active negotiations with the government to repay billions in taxpayer bailouts.

However, it is not likely that Citigroup, the No. 3 U.S. bank, will be free of Feinberg's scrutiny anytime soon, as regulators believe the company must first pay back all of its bailout.

The bank has received $45 billion in TARP funds as well as insurance from the FDIC on $300 billion of assets. The multiple rescues have left the United States with a stake of roughly 34 percent in the bank.

Feinberg's forthcoming rulings will apply only to the final month of 2009, but will set the stage as the baseline for 2010, he has said. The rulings could also sharply scale back 2009 bonuses, which will likely be determined in January after the banks and other TARP recipients report fourth-quarter earnings.

In his first wave, Feinberg cut overall compensation by 50 percent and cash pay by 90 percent at those firms. Feinberg said the rulings are designed to reward long-term performance and clamp down on guaranteed cash, while still being sufficiently attractive to keep talent as the companies seek to repay the government.

(Reporting by Steve Eder and Karey Wutkowski; additional reporting by Nick Zieminski, editing by Matthew Lewis)


Wall Street ends up after jobs, trade data (Reuters)

Thursday, December 10th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks gained on Thursday as signs of improving trends in the job market and a decline in the U.S. October trade deficit reassured investors the economy was on a steady growth path.

The Labor Department said weekly jobless claims rose more than expected last week, but investors took comfort in the four-week average, a better view of underlying trends, which fell to the lowest since September last year.

A separate report showed the trade deficit shrank 7.6 percent as a weak dollar helped boost U.S. exports of goods and services to their highest in nearly a year.

"The jobless claims data certainly got the market moving up in the start, giving a lift to retail and consumer (stocks), which really set the direction of the market today," said Michael James, senior trader at Wedbush Morgan, a regional investment bank in Los Angeles.

The Dow Jones industrial average (.DJI) was up 68.78 points, or 0.67 percent, at 10,405.83. The Standard & Poor's 500 Index (.SPX) ended up 6.40 points, or 0.58 percent, at 1,102.35. The Nasdaq Composite Index (.IXIC) closed up 7.13 points, or 0.33 percent, at 2,190.86.

Consumer-discretionary sector index (.GSPD) was the top performer on the S&P, led by gains in Walt Disney Co (DIS.N), up 3.1 percent at $31.30. The index rose 1.4 percent.

Trading was thin as investors looked to preserve gains as the end of the year approaches and refrained from making big bets ahead of the U.S. Federal Reserve interest rate meeting next week.

Coca-Cola Co (KO.N) shares gained 1.3 percent to $58.58 as one of the top boosts to the Dow after the soft-drink maker resolved a dispute with Costco Wholesale Corp (COST.O) that led the large retailer to halt orders of Coke products.

Time Warner Inc (TWX.N) shares also rose 4.2 percent to $30.45 after completing its spinoff of AOL Inc (AOL.N), which shed 0.6 percent to $23.52.

On the Nasdaq, BlackBerry maker Research in Motion (RIMM.TO) (RIMM.O) rose 2.6 percent to $65.80 and (AMZN.O) closed up 3 percent to $135.38, rebounding from the previous session.

Ciena Corp (CIEN.O) shares fell 11.4 percent to $11.72 after it posted a wider-than-expected quarterly loss, heightening concerns about rising costs ahead of its acquisition of a Nortel Networks Corp (NRTLQ.PK) unit.

Volume was light on the New York Stock Exchange, with 1.06 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 1.96 billion shares traded, also below last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 18 to 11, while on the Nasdaq, 16 stocks fell for every 10 that rose. (Editing by Kenneth Barry)


Goldman top executives to take bonuses in stock (Reuters)

Thursday, December 10th, 2009 | Finance News

NEW YORK (Reuters) –
Goldman Sachs Group Inc (GS.N) plans to pay top managers their 2009 bonuses in stock, rather than cash, as it seeks to deflect outrage over a near-record pay haul months after it repaid billions of dollars in taxpayer aid.

The decision to pay top managers in stock that cannot be sold for five years puts Goldman at the forefront of the push to align Wall Street pay with long-term performance. Still, the firm's compensation is on pace to top $20 billion this year.

That figure has put Goldman in the crosshairs of an international debate on pay.

"I think Wall Street is well aware of the broad direction they need to move," said Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution. "The devil's in the details."

Goldman's plan, announced Thursday, applies to its 30-person management committee, an elite group that includes Chief Executive Lloyd Blankfein as well as some of the firm's most senior risk-takers and managers, including the heads of sales and trading operations.

Those managers will receive all of their discretionary compensation in "shares at risk" -- stock that must be held for five years. They will also face a clawback provision that allows the company to recoup pay from an employee later found to have engaged in improper risk-taking.

The plan, however, leaves room from for some of Goldman's elite performers not on the 30-person management panel to receive out-sized cash paydays. Those salaries would not have to be publicly disclosed by the company.

Goldman CEO Blankfein said in a statement the company believes its compensation policies are the strongest in the industry.

Blankfein himself received no bonus 2008, after receiving a bonus of $67.9 million in 2007, according to a regulatory filing.

Banks like Citigroup Inc (C.N) and Bank of America Corp (BAC.N) have had trouble keeping up with Goldman as they struggled to pay back government bailouts. Chief competitor Morgan Stanley, which has lagged behind Goldman in its recovery, has had to ratchet up its bonus ratio to keep up.


Goldman has felt the brunt of a public backlash for setting aside nearly $17 billion in the first three quarters of 2009 for year-end compensation, even as the firm earlier this year repaid a $10 billion taxpayer bailout.

The anger at pay has gone global.

Earlier this week, Britain slapped a 50 percent tax on bank bonuses. Wall Street is trying to guard against such measures in the U.S.

The Service Employees International Union, a persistent critic of Wall Street pay packages, called the move a "pr stunt."

"Lloyd Blankfein and the rest of Goldman's executives are still using the profits they made off the backs of taxpayers to reward themselves with obscene bonuses," the union's secretary treasurer said in a statement.

The SEIU and other critics have cited the fact that Goldman was a major recipient of TARP money, was made whole on various trading positions in which bailed out insurer American International Group Inc was a counterparty, and was allowed to issue billions of dollars of government-guaranteed debt.

It was also helped by being allowed to convert to becoming a bank holding company at the height of the crisis on an expedited basis and also indirectly benefited from more than a trillion dollars of stimulus and rescue funds doled out by the government.

Other banks are likely to follow Goldman's lead, said Joe Sorrentino, a compensation consultant with Steven Hall & Partners in New York.

"I think they're leading the pack here. Based on their prestige in the industry and their size and reputation, I wouldn't be surprised to see other companies, the Wall Street firms, carry that forward and adopt certain provisions," Sorrentino said.

Some banks have already made adjustments.

Swiss bank UBS AG, for example, raised fixed salaries and matched bonuses to sustainable profit, according to an internal memo in October.

Credit Suisse in October said it would make executives wait three to four years for their bonuses.

Goldman's plan comes as U.S. pay czar Kenneth Feinberg readies his next wave of pay rulings. Feinberg has the authority to set compensation for the highest-paid employees at companies that have not paid back extraordinary bailouts.

Feinberg has made aligning pay with long-term performance a point of emphasis in his rulings.

New York City stands to lose about $20 million of tax revenue for every $1 billion not paid in cash. A state official could not immediately provide such an estimate, though the state gets about one-fifth of its tax dollars from Wall Street.

Goldman gained 0.2 percent, while the sectoral NYSE Arca Securities Broker Dealer index (.XBD) fell 0.7 percent.

(Additional reporting by Elinor Comlay and Joan Gralla in New York and Karey Wutkowski in Washington; Editing by Gerald E. McCormick; Matthew Lewis and Steve Orlofsky)