Wall Street Banks Plan $74 Billion in Employee Bonuses

Strategic Insights -

Despite receiving federal bailout money, six top US banks - Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Wells Fargo & Co., and Morgan Stanley - are set to pay employees a total of $74 billion in bonuses, a $14 billion increase from last year. This decision has sparked criticism from Washington lawmakers, who argue that it shows a return to old habits on Wall Street. The banks' decision to pay employees large sums, in some cases even more than before the financial crisis, has led to a renewed push for legislation governing executive compensation.

Key Takeaways:

  • The six top US banks plan to pay employees a total of $74 billion in bonuses, a $14 billion increase from last year.
  • Goldman Sachs, JPMorgan, and Morgan Stanley have returned the bailout money they received, but continue to benefit from other emergency federal programs.
  • Morgan Stanley posted a loss of $1.26 billion in the latest quarter, yet set aside $3.9 billion in compensation expenses, representing 72% of its quarterly revenue.
  • Wall Street banks typically set aside about 50% of revenue to pay workers, but Morgan Stanley and other banks are outpacing this average.
  • Harvard economics and law professor Lucian Bebchuk considers the large bonuses "surprising, given that the lessons of the financial crisis are so fresh and clear."
  • The Senate's Banking Committee has scheduled a vote on a bill to increase Wall Street pay oversight for Tuesday.
  • U.S. President Barack Obama expressed regret over the large bonuses, stating that he'd "like to think that people (on Wall Street) would feel a little remorse and feel embarrassed and would not get million-dollar or multimillion-dollar bonuses."
  • House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., commented that the decision "strengthens our commitment to getting legislation passed (governing executive compensation). The amounts are troubling."

Statistics:

  • $74 billion: The total amount of bonuses paid to employees by the six top US banks
  • $14 billion: The increase in bonus payments compared to last year
  • $3.9 billion: The amount of compensation expenses set aside by Morgan Stanley, representing 72% of its quarterly revenue
  • 72%: The percentage of Morgan Stanley's quarterly revenue dedicated to compensation expenses
  • $1.26 billion: The net loss posted by Morgan Stanley in the latest quarter

Sources:

  • UPI, July 23
  • The Washington Post (cited by UPI)