Published September 10, 2009

Obama mum on Wall St bonuses as debate rages

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(NEW YORK) Early in his presidency, Barack Obama called big bonuses paid to bankers at the height of the financial crisis 'shameful' and 'outrageous'.

Mr Benmosche: Seemed to ignore public sensitivities about displays of excess by showing off his Croatian villa

In March, public outrage turned to American International Group (AIG) after the insurance company, bailed out with US$180 billion in taxpayer money, paid US$165 million in bonuses. In response, Mr Obama told chief executives of the country's major banks that outsized bonuses were 'just not acceptable'.

After a Group of 20 (G-20) summit in April, President Obama joined other world leaders in calling for 'transparency and accountability' in executive compensation.

His comments raised hopes among Americans losing their jobs and homes that he would crusade against mega bonuses in the financial community.

But eight months later, the big paydays are still around and, lately, there has been barely a whisper about them from the White House.

'The numbers of the bonuses have gotten larger in relation to the earnings and the overall business profits. Nothing has changed very much,' said John Gutfreund, Salomon Brothers CEO in the 1980s, who was once known as the 'King of Wall Street'.

AIG's CEO Robert Benmosche, interviewed in August at his luxury villa in Croatia, slammed the 'pitch fork' mentality that prompted busloads of people to demonstrate in communities where bankers live.

He appeared to ignore public sensitivities about displays of excess by showing off his 12-bathroom villa overlooking the Adriatic Sea.

In one meeting with employees, he called New York Attorney-General Andrew Cuomo a 'criminal'. Mr Cuomo has been critical of AIG's pay practices.

Beyond AIG, as the financial crisis deepened, banks took billions from public coffers. A year later, the bonuses go on.

According to reports, Citigroup plans to pay energy trader Andrew Hall more than US$100 million this year.

In July, Goldman Sachs Group Inc said it had set aside US$11.3 billion in the first half of the year towards bonuses for its employees. CEO Lloyd Blankfein warned employees that they should steer clear of flashy purchases because it is not the time to be 'seen living high on the hog', the New York Post reported.

The average bonus at Goldman is on track to be US$768,000 if the company continues setting aside bonus money at the pace it did in the first half of 2009.

Morgan Stanley is on track to pay an average bonus of US$189,000, even though it reported losses in the first two quarters of 2009.

And although the biggest bonuses go to senior bankers, star traders and partners, they trickle down.

'If you are an analyst out of a good business school or an associate with a couple of years of experience, you are still making hundreds of thousands of dollars,' said John Carter, a recruiter at New York's Hagan-Ricci Group Inc. 'You can do pretty well.'

In 2008, Wall Street cash bonuses totalled US$18.4 billion, down from 2007's US$32.9 billion, according to the New York State comptroller's office. This year, pay consultants expect those figures to rise as markets recover.

Major US banks have argued that they need to pay market rates to retain and attract top talent, or risk losing out to foreign competitors, hedge funds and others.

Wall Street pay consultant Alan Johnson said his banking clients recognise the 'anger in the public domain'. 'You have to be aware of it,' he said. 'It's real and important. Any public company has to be concerned about how the different audiences are going to perceive what they do.'

A study this year by New York's Mr Cuomo said there was 'no rhyme or reason' to the way banks pay millions to their employees. Another report by compensation consultant James Reda said that aligning pay to short-term performance, also known as rewarding risk, is in vogue.

America's Bailout Barons, a report released last week by the Institute for Policy Studies, a Washington-based non-profit that has long criticised Wall Street pay, said the top five executives at 10 banks bailed out by taxpayers were rewarded with stock options at the height of the crisis that have grown in value by US$90 million. -- Reuters