Deferred bonuses working out rather well for recession-era bankers
This coming January will be a very good month to be a salesperson at a Mercedes Benz dealership or a real estate rep out in East Hampton. Bankers who made it through the crisis will see their pockets lined with cash next month as company shares finally vest, and at great prices.
Following a miserable 2009, banks cut pay and headcount while distributing a greater percentage of bonuses in deferred stock, rather than cash, something bankers typically hate. Five years later, come vesting time, the move is creating a financial windfall for bankers who sheltered the storm, according to a new report in Crain’s New York Business.
Take Goldman Sachs, which granted bankers $3.6 billion worth of shares that couldn’t be sold until January 2015. Those shares are now worth $5.1 billion as Goldman’s stock price has increased 40% over that time.
Same song, different tune at Bank of America and Morgan Stanley, where restricted shares have more than doubled in value over the last five years. Between the three banks, well over $10 billion in shares will vest in January. Somewhat ironically, the financial crisis that many blamed on Wall Street enabled bankers to buy low on their own company stock. Now they’re in a position to sell high.
Moving forward, deferred shares likely won’t provide such a happy ending. Stock prices at banks were understandably deflated in 2009 following the financial collapse, giving plenty of room for a correction. As of earlier this year, five of the six largest U.S. banks were trading above their tangible book value, a significant reversal from just a few years ago.
Moreover, regulators have plans to make bonus payments even more painful for bankers in the future. New York Federal Reserve Bank President William Dudley said in October that bankers should be paid bonuses in debt securities rather than in equity,allowing any future fines to be scooped off the top of the bonus pool, and that the vesting period should last a full decade. Ugh.
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