The firm set aside $16 billion for compensation and benefits last year, an overall 11% increase from the previous year as net revenue jumped 15%. Morgan Stanley has 62,542 employees, an increase of 3% from [...]]]>

NEW YORK (Dow Jones)–Morgan Stanley paid employees an average of $256,595 each in 2010, an increase of 7.5% from 2009.

The firm set aside $16 billion for compensation and benefits last year, an overall 11% increase from the previous year as net revenue jumped 15%. Morgan Stanley has 62,542 employees, an increase of 3% from the prior year.

via Morgan Stanley Per-Employee Compensation Up 7.5% from 2009 – WSJ.com.

If the avg. salary at my co. rose 7.5% in ’10, then why (as a top performer) is mine effectively dropping by 3% for the 3rd year in a row?

Oh yeah, so execs can take home multi-million dollar bonuses. At least James Gorman (the CEO) is also taking another pay cut. That makes me feel a little better.

The financial crisis dragged sky-high pay packages for top Wall Street executives down to earth. Those days are ending.

… Morgan Stanley said Chief Executive James Gorman got about $7.4 million in restricted stock and options for 2010. That was down 12% from the $8.5 million stock award that he got a year earlier.

Total compensation for Mr. Gorman, who became CEO at the start of 2010, won’t be released until Morgan Stanley files a proxy statement for its annual shareholder meeting. The figure will be smaller than the $15 million in salary and bonus that Mr. Gorman got for 2009, according to a person familiar with the situation. More than 80% of Mr. Gorman’s pay will come in deferred instruments such as stocks, options and deferred cash awards that can be clawed back later, the person said. That means Mr. Gorman will get a cash bonus. He didn’t get one for 2009, and predecessor John Mack, now Morgan Stanley’s chairman, took no bonus for three consecutive years.

In Mr. Gorman’s first year as CEO, Morgan Stanley generated its highest net income and revenue since 2006, but the firm’s results and stock price still trailed other major banks, which explains why Mr. Gorman’s pay is down from last year despite his promotion to CEO from co-president.

Thursday, Morgan Stanley said its overall compensation and benefits for 2010 rose 11% to $16.05 billion from $14.43 billion in 2009. But Mr. Gorman has stressed discipline in pay, and compensation fell 2% in the unit that includes traders and investment bankers. The firm’s compensation as a percent of its revenue also fell from 2009.

via As Wall Street Rebounds, So Does Top Pay – WSJ.com.

I can understand “discipline in pay”, and agree that salaries at the top end of things have gotten way out of hand … but for those of us towards the bottom of the payscale, it’s still very frustrating, since a few million dollar pay cut for those at the top of the scale won’t have a significant impact on their standard of living, but a mere $5000 increase in my salary would go a long way towards making my life easier.

Oddly, today’s “Non-Sequitur”, by Wiley Miller seems to reflect my feelings on the issue exactly. Thanks to Dr. Cross for pointing it out to me.

For the record, Mr. Gorman only made somewhere between 250 and 300 times what I did last year … and I make about 75-80% below the so-called “average” employee.

Lehman Brothers Holdings Inc.’s estate sued J.P. Morgan Chase & Co., alleging J.P. Morgan illegally siphoned billions of dollars from Lehman in the days before the troubled investment bank filed for the largest bankruptcy in U.S. history.

The lawsuit alleges that [...]]]> It’s going to be really interesting to see how this plays out …

Lehman Brothers Holdings Inc.’s estate sued J.P. Morgan Chase & Co., alleging J.P. Morgan illegally siphoned billions of dollars from Lehman in the days before the troubled investment bank filed for the largest bankruptcy in U.S. history.

The lawsuit alleges that J.P. Morgan Chief Executive James Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened. J.P. Morgan, the suit alleged, coerced Lehman to turn over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman’s collapse. The estate is hoping to recoup billions in collateral the bank demanded, and billions in other damages.

via Lehman’s Bankruptcy Estate Sues J.P. Morgan – WSJ.com.

I’ve been doing a lot of reading about the financial crisis in recent weeks, and a couple of the books delved fairly deeply into the inner workings and behind-the-scenes dealmaking that happened in the months and weeks leading up to the September onslaught.

One of the better reads is Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves. While Too Big To Fail doesn’t really spend a whole lot of time explaining why the crisis happened, it’s the best chronicle of who, what, where, when and how. As the trigger point of the crisis, the attempts to save and the ultimate collapse of Lehman Brothers is the most deeply developed story of the many events that occurred during those last fateful months.

For a deeper understanding of why, Roger Lowenstein’s The End of Wall Street and Scott Patterson’s The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It are more instructive reads. Both books do a good job of explaining how the derivatives market, primarily the manufacturing of CDOs (collateralized debt obligations) and the subsequent purchase and sale of CDSs (credit default swaps) by speculators snowballed out of control when the housing market collapsed starting in 2007, through the near total collapse of the entire financial industry in late 2008.

While many people lay much of the blame of the collapse on Goldman Sachs, especially in light of recent SEC investigations into the ABACUS deals, Sorkin’s book made me wonder how much J.P. Morgan’s actions hastened the crisis; not from their own risky trading, but in their role as banker to the banks … and specifically their ever increasing demands for collateral to back financing, and contributing significantly to many institutions liquidity crises.

Trust me … none of the reading is as dry as it sounds.

Here’s an idea that seems to make some sense. Don’t limit Wall Street pay and bonuses, but require higher FDIC premium payments if a bank’s pay structure is deemed to be “risky”, such as incentive bonuses for writing more loans (which leads to bankers writing riskier loans).

Credit Suisse Group’s novel plan to pay bankers with a brew of its own toxic bonds and corporate loans has gotten off to an unexpectedly strong start, which could put further political pressure on other Wall Street firms to change how they pay their employees.

Late [...]]]>

Bankers Win Big in Toxic Pay Plan – WSJ.com

Credit Suisse Group’s novel plan to pay bankers with a brew of its own toxic bonds and corporate loans has gotten off to an unexpectedly strong start, which could put further political pressure on other Wall Street firms to change how they pay their employees.

Late Wednesday, the bank told 2,000 of its top bankers that a $5 billion fund of soured mortgages and bonds — which it granted as a big portion of 2008 pay — had returned 17% since January, according to people familiar with the matter.

The returns registered well below the 75% increase in Credit Suisse shares over the same period, and the 30% uptick in the benchmark Merrill Lynch high-yield bond index. But the fund still outperformed major stock indices, as well as initial expectations of bankers inside and outside the Swiss bank. One Credit Suisse senior banker initially decried what he called the “eat your own cooking plan” as unfair to employees who didn’t contribute to the bank’s 2008 net loss.

Investment banks usually pay their employees around the end of the year in a combination of cash and stock. But banks are increasingly desperate to pay employees without triggering outrage in Washington and other capitals.

Credit Suisse has taken perhaps the most aggressive approach. Starting at the end of 2008, the bank took a significant portion of the annual bonus pool and switched it from stock to shares in a fund made up primarily of distressed assets. In essence, this means the performance of bets these bankers were originally involved in structuring will help determine whether their 2008 compensation turns into big money or big losses down the road.

Credit Suisse has said one of the reasons it decided on the pay plan was to show regulators in the U.S. and Europe it took the financial crisis seriously.

Paul Calello, Credit Suisse’s investment banking chief, says using the fund as part of the firm’s compensation plan is “thoughtful and responsible.” Mr. Calello, who, like other senior managers, received no bonus for 2008, declined to comment on the fund’s performance.

It is unclear whether other banks will follow Credit Suisse’s lead. Several banks reached Thursday said they have looked at the idea, but no major companies have publicly committed to it. Other Wall Street executives and analysts said the idea could make sense for large commercial banks that still have heavy exposure to commercial real estate or areas of the bond market that haven’t bounced back.

Wall Street firms have “stayed on the sidelines to see how effective” Credit Suisse’s plan is, says Gary Goldstein, president of executive recruiting firm Whitney Group. “I think you’ll see some plans like this at the end of the year.”

Credit Suisse got into many of the toxic assets in the fund during the bull market, when it looked like highly leveraged companies would still be able to pay off their loans. When the markets soured, the bank wasn’t able to sell as many of the loans to investors, so it had to hold onto them and take on greater risk.

In late 2008, the bank decided to create a fund for senior employees that would help move some of these assets off its own balance sheet and into a bonus pool. In the meantime, the bank and its employees could wait out the bear market while those loans recovered in value or were written off.

For now, Credit Suisse may have been a beneficiary of good market timing. The fund assets, which include debt of a Japanese shopping center, a mining company and a U.S. supermarket chain, could still take a turn for the worse before employees are paid. The employees who got the fund can’t cash out of the shares for at least five years.

I like this idea … hopefully some of the other firms on the street will package up their remaining toxic assets into a fund and use that to pay the big boys, freeing up some of the cash on hand to give raises to those of us toward the bottom of the ladder that could use an additional few hundred dollars a month on our paychecks …

… the biggest mistake of the Clinton years regarding Wall Street and the one that rings loudest today was the repeal of Glass-Steagall, a 1933 law that effectively split investment banking and brokerages from commercial banks.

In the years leading [...]]]>

David Weidner’s Writing on the Wall: Bill Clinton’s legacy is our financial disaster – MarketWatch

… the biggest mistake of the Clinton years regarding Wall Street and the one that rings loudest today was the repeal of Glass-Steagall, a 1933 law that effectively split investment banking and brokerages from commercial banks.

In the years leading up to the repeal, Wall Street had been grumbling that the law had become an anachronism. Financial technology was sophisticated. We were so much smarter than they were back in 1929 that there was no way a financial services conglomerate could pose a threat to the system, Wall Street experts said. Besides, they argued, it was a good idea for a bank to handle customers’ investments and savings as a hedge in the bad times.

The Clinton administration effectively had its hand forced in 1998 by the merger of Citicorp and Travelers Group in 1998. The creation of Citigroup Inc. required a lot of chutzpah by its CEO, Sandy Weill, because it was effectively prohibited under Glass-Steagall.

Enter the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which not only allowed Citi to exist but also eliminated key barriers between bankers who are supposed to limit risks and investment bankers who were supposed to take them.

The biggest argument critics have against bringing back Glass-Steagall is that it would be too chaotic. Whole companies would have to be cleaved. Relationships would have to be unwound.

Well, back in 1933 the law effectively split J.P. Morgan, the bank, from what would become Morgan Stanley, the brokerage. Both seem to have come through the disruption fairly well.

I am not entirely sure I agree with Mr. Weidner’s thesis that the repeal of Glass-Steagall was a mistake, and I definitely don’t think that using a 75 year old example of two companies that were able to survive being split is a good comparison … but I do think that there should have been better controls on how a financial services company expanded and grew so that problems in one unit wouldn’t threaten to take down the entire company with it.

The modern JPMorgan Chase has seemed to weather the crisis fairly well, and it is by far the largest of the financial conglomerates … Bank of America‘s biggest problems were caused by their forced acquisition of Merrill Lynch; far more so than by their own mistakes, such as their acquisition of Countrywide, which while still a mistake is far less devastating to their bottom line.

It’s about balance, and hopefully what comes out of this debacle is increased oversight and regulation of derivative products and hedge-funds, but without an excessive amount of government interference into expansion of more traditional business lines.

CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under “active” criminal investigation by the FBI for trading stocks based on inside information.

Accusations against the two lawyers – a man and a woman whose names have not been released – are [...]]]>

SEC Attorneys Probed For Insider Trading

CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under “active” criminal investigation by the FBI for trading stocks based on inside information.

Accusations against the two lawyers – a man and a woman whose names have not been released – are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

The report, based on a review and analysis of “more than two years of e-mail and brokerage records,” puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

“We ought to be outraged if there is one insider trading information that’s leading to personal profit,” Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

“It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley said in his letter to Schapiro.

According to the report, the male attorney under investigation by the FBI works in the Office of the SEC’s Chief Counsel and “has access to a tremendous amount of nonpublic information.”

The report alleges both the male attorney and female attorney – who works in the enforcement division – “traded in the stock of a large financial services company” despite being told by another SEC employee of ongoing “investigations of that company.” The report calls this is a direct violation of SEC rules.

In another possible violation, the male attorney was found to have sent e-mails from his SEC account to his brother and sister-in-law “recommending particular stocks.” The attorney’s stock portfolio was estimated at one point to be valued at $200,000.

As for the female attorney, the report states that “two months before an investigation of a large health care company was opened” she “sold all of her shares of stock in the company.” And “two days before an inquiry was opened” by a colleague who “occupies the office next to her” the female attorney sold stock in an oil company. Investigators say the female attorney traded stocks 247 times between January 2006 and January 2008. At one point her stock portfolio was valued as high as $170,000.

In addition, the report says that the female attorney “spent much of her work day e-mailing and searching the Internet about stocks.” It quotes her telling investigators: “It’s my main hobby. It’s my passion.” And: “It’s my way of keeping intellectually above what other people are doing.”

While the woman told investigators she did not check the SEC database – known as EDGAR – for information related to her personal stock trades, the inspector general said computer records reveal that she did, in fact, check the database on at least four separate occasions. SEC employees are prohibited from accessing EDGAR for personal trading purposes.

Said Grassley, “Isn’t it odd that you’ve got people in the prosecuting department that are trying to profit from information that they get from it. Their job is to be prosecuting and not profiteering.”

According to employee interviews with investigators and SEC e-mails, the two colleagues shared many of the same stocks, frequently discussed their trades via e-mail, and regularly talked about SEC investigations and their own stock trading during weekly lunches.

Read more …

Wonder if the Wall Street Journal will pick up this story tomorrow. Wonder if the attorneys will be asked to resign (or will offer their resignations) just to help preserve any sense of confidence the American public might still have in the SEC. Wonder if the Obama Administration will get involved. Wonder if this a smokescreen of some sort to distract the American public from some other more disconcerting news that will get buried in the fall-out from this one. Wonder if I’m starting to sound like A-Train yet.

The old Wall Street adage about the dangers of catching a falling knife doesn’t seem to be scaring individual investors away from Citigroup Inc.

Some discount-brokerage firms report a surge of individual, or retail, investors buying shares of Citigroup during the past five months, amid the New York [...]]]>

Individual Investors Pile Into Citi – WSJ.com

The old Wall Street adage about the dangers of catching a falling knife doesn’t seem to be scaring individual investors away from Citigroup Inc.

Some discount-brokerage firms report a surge of individual, or retail, investors buying shares of Citigroup during the past five months, amid the New York bank’s stock-price slide. For some investors, the chance to buy a Dow Jones Industrial Average stock at a low price, and the hope for a quick buck on a rebound, have proved too tempting to refuse.

“We’re speculators, and that can be really risky, but it’s worth it to take a shot,” said Jin Chen, a 22-year-old Rowland Heights, Calif., resident who recently bought 10,000 shares of Citigroup at $3.10 a share. “This is my opportunity to make some money.”

Citigroup shares have consistently been among the most actively traded stocks during the past several months at online brokers TD Ameritrade Holding Corp., E*Trade Financial Corp. and TradeKing.

…

Despite Citigroup’s recent losses and worries about the impact of the recession, analysts’ average price target for the stock is $3.53, according to nine analysts tracked by Thomson Reuters. That is 32% higher than the price Wednesday. David Trone, an analyst with Fox-Pitt Kelton, said in a recent report that he expects Citigroup shares “to gravitate back up toward the $3 mark once the emotion of the moment passes.”

Part of Citigroup’s appeal for speculative individual investors is sharp percentage swings in the stock. Not since the dot-com boom and crash have stock prices moved as erratically as during the past year, and Citigroup is an extreme case. Citigroup’s 11% drop on Monday was followed by a 9.5% upswing Tuesday.

“We’re seeing enormous volumes in Citi … and the retail investors have the buying power to make the stock move,” said Joe Ricciardi, managing director with Knight Trading, which processes trades for several large online-brokerage firms. In the past three months, an average of 435.2 million Citigroup shares exchanged hands daily.

Several investors who recently bought shares of Citigroup said they are betting that the government won’t allow the bank to fail.

I got mine at $1.03 … just 6 cents off the low; but not nearly on the same scale as some of the buyers mentioned in this article. Even though the short-term targets are only at $3.53, I think that long-term there’s even greater potential, but don’t buy it if you can’t afford to lose it.

WASHINGTON — The White House plan to rescue the nation’s financial system, announced on Tuesday by Timothy F. Geithner, the Treasury secretary, is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the [...]]]>

Geithner Sets Out Sweeping Overhaul to Bank Bailout – NYTimes.com

WASHINGTON — The White House plan to rescue the nation’s financial system, announced on Tuesday by Timothy F. Geithner, the Treasury secretary, is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the 1930s.

Administration officials committed to flood the financial system with as much as $2.5 trillion — $350 billion of that coming from the bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.

Mindful of previous financial crises at home and abroad that became protracted because governments moved too slowly, Mr. Geithner pointedly criticized the Bush administration for not acting boldly and quickly enough.

But the initial assessment of the plan from the markets, lawmakers and economists was brutally negative, in large part because they expected more details.

Basic questions about how the various parts of the program would work, especially those involving the unsellable mortgages that banks are holding and preventing home foreclosures, were left for another day. Some Wall Street experts criticized the plan for relying too heavily on the same vague solutions proposed by the Bush administration.

The stock market, propped up for weeks on the expectation that Washington would finally deliver a comprehensive rescue plan, dipped almost as soon as Mr. Geithner began speaking in the morning. The Dow Jones Industrial Average fell 382 points, or 4.6 percent, by the time the market closed. Yields on Treasury bills jumped, indicating a flight from stocks to the safety of government bonds.

Not surprised the market fell so much today, because Geithner’s speech was definitely light on details, as is the Fact Sheet being distributed by the Treasury Department.

One of the most telling quotes from the fact sheet is “To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.”

And yet, the fact sheet does little to address the uncertainty … it is long on ideas, many of them great, but very short on strategies on how to accomplish those ideas, and until there’s a solid implementation plan in place, nothing is going to alleviate the fear that still permeate the capital markets.

So we’ll just keep trudging along trying to figure out how not to lose our shirts …

On the bright side, however, it looks like Morgan Stanley is going to attempt to pay back the TARP money they received last fall as soon as possible.

Morgan Stanley CEO Looks To Repay TARP This Year

NEW YORK (Dow Jones)–Morgan Stanley Chief Executive John Mack on Monday said the securities firm hopes to begin paying back the government this year for funds it received as part of the government’s bailout of the banking system.

Mack said top executives at the firm are now studying when it can repay the $10 billion received under the Treasury Department’s Troubled Asset Relief Program. Key to repayment is that Morgan Stanley’s capital markets businesses continue to improve after last year’s devastation.

“We’re waiting for the capital markets to open again,” he said during a special shareholders meeting. “Our intent is to pay it off as soon as it is feasible.”

That’s got to be a good thing.

Anatomy of the Morgan Stanley Panic – WSJ.com

Two days after Lehman Brothers Holdings Inc. sought bankruptcy protection, an explosive rumor spread that another big Wall Street firm, Morgan Stanley, was on the brink of failure. The chatter on trading desks that Sept. 17 was that Deutsche Bank AG had yanked a [...]]]> I knew it!

Anatomy of the Morgan Stanley Panic – WSJ.com

Two days after Lehman Brothers Holdings Inc. sought bankruptcy protection, an explosive rumor spread that another big Wall Street firm, Morgan Stanley, was on the brink of failure. The chatter on trading desks that Sept. 17 was that Deutsche Bank AG had yanked a $25 billion credit line to the firm.

That wasn’t true, but it helped trigger a cascade of bearish bets against Morgan Stanley. Chief Executive Officer John Mack complained bitterly that profit-hungry traders were sowing panic. Yet he lacked a critical piece of information: Who exactly was behind those damaging trades?

I’ll tell you who. Art O’Connor, that’s who! Well, not really … but I think he should share some of the profits from his short positions.

Oh sure, I could blame Merrill and Goldman and UBS and all the other major firms on the street for helping to drive down the value of my stock and retirement plan, but I prefer to blame Art.

And why? Because he’s tall, has a good-lookin’ fiancée, and can ride a bike pretty damned fast. Oh, and because he’s local and a friend … and if you can’t blame your friends for bad shit that happens nationally and internationally, who else can you blame???

Citi Weighs Its Options, Including Firm’s Sale – WSJ.com