CEO Pay: Defending the Indefensible
A recent Congressional hearing
analyzed CEO pay.
Large pay packets have been handed out to executives whose companies have even stumbled or failed.
Forbes magazine said CEO pay averaged $15.2 million for the CEOs in the largest 500 U.S. companies in 2006, an increase of 38 percent in one year.
All three CEOs questioned at the hearing profited handsomely at a time when their companies were losing billions of dollars and stock values were plunging."It's only in the wacky world of CEOs where you get severance for failing," said Nell Minow, editor of The Corporate Library and one of the economic experts testifying.
Committee figures showed that Countrywide Financial suffered a $1.2 billion loss in the third quarter of 2007 and then lost another $422 million in the fourth quarter. By the end of the year, the company's stock had fallen 80 percent from its five-year peak in February. During the same period, Angelo Mozilo received a $1.9 million salary, $20 million in stock awards contingent upon performance and sold $121 million in stock. Some of those stock sales occurred at the same time the company was borrowing $1.5 billion to repurchase its shares. Mozilo also insisted - as documented in a November 2006 e-mail - that he be reimbursed for taxes owed when his wife traveled on Countrywide's corporate jet.
Separately, the FBI is looking into fraud allegations against Countrywide Financial Corp., a U.S. government official told CNN. The probe reportedly is examining underwriting and mortgage origination practices, and whether the company misrepresented losses related to subprime loans.
Stanley O'Neal, formerly of Merrill Lynch & Co., received a retirement package of $161 million when he was pushed out as Merrill Lynch CEO last October. But the committee said that if the company had terminated O'Neal for cause rather than letting him retire, he would not have been entitled to $131 million of that in unvested stock and options. During 2007, the firm reported $18 billion in writedowns related to subprime and other risky mortgages. O'Neal countered that he had received no bonus in 2007 and no severance pay.
[Update: 4/17/08 It's too bad O'Neal received no bonus and no severance pay. Today the company announced it was laying off 4,000 workers after posting a steep loss related, in part, to his mismanagement. That means that 4,000 workers have no bonus, no severance pay... no salary and no job. But he kept the $161 million.]
[Update - July 17, 2008 See news article below: Merrill Lynch reports $4.9 billion loss. Nation's largest brokerage suffers its fourth-straight quarterly loss. Great job there, Stanley O'Neal!]
[Update: 9/15/08 Merrill Lynch is no more... see below.]
Citigroup, which saw its stock fall 48 percent at the end of 2007 compared with a year earlier, awarded Charles Prince a cash bonus worth $10.4 million after he stepped down as CEO last November. He also received $28 million in unvested stock and options and $1.5 million in annual perquisites upon his departure.
[Update: 4/18/08 Citigroup posts loss, cuts 9,000 jobs, on top of the 4,200 cuts announced during the previous quarter. Financial services giant records $5.1 billion loss and more than $13 billion in writedowns, and says it will eliminate more positions. Last quarter, the company reported a eye-popping $9.83 billion loss - the worst quarterly loss ever recorded in the 196-year-history of the firm and its predecessors.]
[Update: 7/18/08 Citigroup posts $2.5 billion second-quarter loss. The net loss totaled 54 cents per share and compared with a year-earlier profit of $6.23 billion, or $1.24 per share. The bank reduced its work force by 6,000 during the quarter, bringing its job cut total to 11,000 for 2008. Citigroup has failed to turn a profit for three straight quarters now. Its shares have tumbled 65 percent over the past year, and recently hit their lowest point since the day Citicorp and Travelers combined in October 1998. Of course, Charles Prince kept the $39.9 million pay package.]
Several of the executives did acknowledge public resentment over the fact that large company CEOs now receive about 600 times what the average worker earns, compared to about 40 times in 1980.
Apparently,
Gordon Gekko lives on!
"
Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind."
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Merrill Lynch reports $4.9 billion lossNation's largest brokerage suffers its fourth-straight quarterly loss, confirms plans to sell Bloomberg stake for $4.43 billion.
By
David Ellis, CNNMoney.com staff writer
Last Updated: July 17, 2008: 7:30 PM EDT
NEW YORK (CNNMoney.com) -- Merrill Lynch booked its fourth-straight quarterly loss Thursday, this time losing nearly $5 billion, as the nation's largest brokerage was forced to once again take massive writedowns.
Merrill said it lost $4.9 billion overall. On a continuing operations basis, it lost $4.6 billion, or $4.95 a share, down from a profit of $2.01 billion, or $2.24 a share a year ago. Analysts polled by Thomson Reuters were expecting the company to report a loss of just over $1.8 billion, or $1.91 a share on this basis.
The company has now lost more than $19.2 billion in the past twelve months, making it one of the hardest hit companies during the credit crisis roiling the nation's big financial services firms.
Merrill (
MER,
Fortune 500) shares plunged about 6% after hours, nearly wiping out the stock's 10% gain in regular trading on the New York Stock Exchange Thursday.
Driving the loss was yet another round of writedowns. Merrill took a $4.8 billion mark on its mortgage-related portfolio, a $2.9 billion writedown due to its exposure to the recently downgraded bond insurers Ambac (
ABK) and MBIA (
MBI), $1.7 billion in its investment portfolio of U.S. banks and $348 million related to leveraged loans.
That surpassed the nearly $6 billion total that some analysts were anticipating heading into this week's results.
"Is the company a good franchise? It's a very good franchise," said Brad Hintz, senior analyst at Sanford C. Bernstein & Co. "The problem you have is it will be a long time until that balance sheet is clean."
Those marks hit Merrill's global markets and investment banking divisions particularly hard, as it suffered a pre-tax loss of $8.56 billion in the quarter from continuing operations.
Merrill's global wealth management business remained profitable, but its earnings fell 16% from a year ago.
"Our core franchise continues to perform well despite the extremely challenging market environment," said John Thain, Merrill's chairman and chief executive officer in a written statement.
Merrill also took a pre-tax charge of $445 million due to staffing cuts. During the quarter, the company said it trimmed its ranks by 3,100, slightly more than it anticipated when it first announced the planned cuts in April. At the end of the quarter, Merrill's total employee count stood at 60,000.
The New York City-based firm also revealed that it would sell its 20% stake in the media outlet Bloomberg LP for $4.43 billion to Bloomberg Inc., confirming long-running speculation that it would sell assets in order to raise capital.
Merrill added it reached a tentative agreement over the sale of a controlling interest in the financial services administrator Financial Data Services for more than $3.5 billion.
Ongoing deterioration in the housing market, mounting troubles in the economy and pressure from regulators has prompted brokerages, Wall Street firms and banks of all sizes to raise additional capital.
But Merrill said it is holding onto its 49% stake in asset manager BlackRock (
BLK,
Fortune 500). Larry Fink, BlackRock's CEO, revealed earlier Thursday during his company's quarterly earnings release that the two firms would stay together. BlackRock reported a 23% increase in its earnings, beating expectations.
Thain, just 8 months into his tenure as CEO, told analysts during a conference call Thursday evening that the company was in a "comfortable spot" in terms of capital, following the two sales.
But Merrill's latest loss raised a red flag for one rating agency. Moody's downgraded Merrill's senior long-term debt rating Thursday evening following Merrill's report.
"Management's options to sell assets or raise more common equity to offset unexpected losses are now reduced given the difficult industry and capital markets environment," wrote Peter Nerby, a senior vice president at Moody's in a note.
Thain, the former NYSE Euronext CEO and Goldman Sachs alum, did not rule out the sale of its stake in BlackRock in the future should the company need to raise additional capital.
But he suggested, however, that the company would probably consider alternatives before making such a move.
"There are, in fact, other options on our balance sheet," said Thain.
Merrill is the latest financial firm to deliver second-quarter results this week.
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Is this a surprise? If so, to whom?
Merrill Lynch is no moreMerrill Lynch agreed to be acquired by Bank of America for $29 a share, or $43.5 billion, after being pressured into a deal by federal regulators.
From the New York Times, September 15, 2008...
“It is an enormous shock,” said Steve Fraser, a Wall Street historian and author of “
Wall Street: America’s Dream Palace.”
“Merrill was a kind of bedrock institution whose stability and longevity was taken for granted and was reassuring to people,” Mr. Fraser said. “Even in these very highly erratic and speculative marketplaces like we’ve been living through, you didn’t think Merrill would be vulnerable.”
Merrill, the nation’s largest brokerage firm, was one of the earliest Wall Street firms to go public, in 1971. Its executives, traditionally former stockbrokers, have long been viewed as spokespeople for the entire industry. After the crash of 1987, for instance, Merrill’s chief executive appeared on a television commercial and used one of the company’s long-time slogans, saying: “Merrill Lynch is still bullish on America.”
The investment bank has taken more than $45 billion in write-downs, a figure that is two times more than all the profit Merrill made in the two and a half years before the credit crisis. The charges have pushed Merrill Lynch deep into the red and forced the company to lay off 4,000 workers. Merrill has raised more than $15 billion in additional capital to strengthen its financial position but has struggled to regain investors’ confidence.
“A hundred guys flew this firm into a mountain,” said a broker who works for Merrill in California and asked to remain anonymous because he did not have permission to speak with reporters. “It’s really sad. Now we’re going to be a bank like every one else.”
As recently as last Wednesday, John A. Thain, chief executive of Merrill Lynch was still out selling the Merrill story. He met with worried employees financial advisers in Minneapolis as part of a series of town halls he has been holding to answer employee questions. Mr. Thain reassured them about the company’s capital base, dwindling level of worrisome assets, and the value of Merrill Lynch’s businesses, according to someone who attended.
And he told them that the pain looked like it would end by 2009.
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