Five firms pay $3 billion to top execs over last 5 years
Bloomberg carries this bit of news for us to chew on:
Wall Street’s five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.
Merrill Lynch & Co. paid its chief executives the most, with Stanley O’Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.’s James “Jimmy” Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.
Democrats and Republicans in Congress are demanding that limits be placed on executive pay as part of the $700 billion financial rescue plan proposed by U.S. Treasury Secretary Henry Paulson. The former Goldman Sachs Group Inc. CEO, who received about $111 million between 2003 and 2006, said in testimony to Congress on Sept. 24 that he would accept such limits as part of the plan, after initially opposing them.
Update: reader Jack links to a NYT story that is required reading, and it looks like the series will be quite revealing…
.I.G.F.P. It was run with almost complete autonomy, and with an iron hand, by Joseph J. Cassano, according to current and former A.I.G. employees.
A onetime executive with Drexel Burnham Lambert — the investment bank made famous in the 1980s by the junk bond king Michael R. Milken, who later pleaded guilty to six felony charges — Mr. Cassano helped start the London unit in 1987.
The unit became profitable enough that analysts considered Mr. Cassano a dark horse candidate to succeed Maurice R. Greenberg, the longtime chief executive who shaped A.I.G. in his own image until he was ousted amid an accounting scandal three years ago.
But last February, Mr. Cassano resigned after the London unit began bleeding money and auditors raised questions about how the unit valued its holdings. By Sept. 15, the unit’s troubles forced a major downgrade in A.I.G.’s debt rating, requiring the company to post roughly $15 billion in additional collateral — which then prompted the federal rescue.
Rdan here: Less the housing crisis, more former rascals of the Savings and Loan major collapse and bailout….heading up what units? Probably worth a post or two as we follow the story.
Update 3: Yves Smith at Naked Capitalism has a thought on the NYT series:
If you believe that, I imagine you believe in the tooth fairy too. Goldman had $45 billion of equity as of its last balance sheet date. A loss, if it approached $20 billion, in this general environment of worries about financial firms, would have sent Goldman shares into a tailspin, and the rating agencies have started taking a dim view of overlevered financial firms that appear unable to raise equity on reasonable terms. This certainly would have lead to a downgrade, and that has put other firms on a slippery downward slope.
Note the article contains a recitation of denials later in the piece that the damage would have been as large as $20 billion or that Goldman’s exclusive role in the talks was self-interested.
The rest of the story focuses on how the credit default swaps operation, a small unit at AIG, was allowed to take on risks that brought a sizable and otherwise highly successful firm to its knees. It is a riveting read.