The investment banks at JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley slashed compensation in the fourth quarter, responding to political pressure that will probably persist as details of bonuses for their top executives emerge in coming weeks.
The three Wall Street firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion. The total fell short of the $46.1 billion five analysts estimated this month and is almost $10 billion less than what some analysts were estimating in October.
"There's no question that Wall Street got the message from Washington," said Michael W. Robinson, a senior vice president of Levick Strategic Communications and former head of public affairs at the Securities and Exchange Commission. "But positioning the big banks with big bonuses as the bad guys has played well for politicians, and they are likely going to keep coming back to it. To some extent, banks are just going to have to be prepared for that."
President Obama called bank bonuses "obscene" twice this month. Last week, Rep. Andre Carson, D-Ind., called the industry's practices "reckless" during a House Financial Services Committee hearing on compensation. Banks are to disclose stock awards handed out to top executives in the next few weeks.
Lloyd Blankfein, 55, and Jamie Dimon, 53, the CEOs of Goldman Sachs and JPMorgan Chase, and Mack, 65, defended their companies' pay practices in a Jan. 13 hearing of the Financial Crisis Inquiry Commission. They said making senior executives hold shares they receive as compensation aligns their interests with those of shareholders.
At the investment banks of JPMorgan Chase, Goldman Sachs and Morgan Stanley, all based in New York, about $24 billion in bonuses will be paid, according to estimates by the pay consultant Options Group, which has said that yearend awards account for 60% of total compensation costs. Though this would be a 29% increase from the estimated payouts a year ago, it is less than the estimated payout for 2007.
JPMorgan Chase has allocated $549 million for investment bank compensation in the fourth quarter, down 80% from the third quarter. This brought full-year compensation costs at the investment bank unit — which more than doubled its revenue from 2008 — to $9.33 billion.
Goldman Sachs subtracted $519 million from its compensation pool in the fourth quarter and made $500 million in charitable gifts. These moves brought full-year pay costs to $16.2 billion, or 36% of revenue.
Goldman Sachs' decision reflected "management buckling to media/Washington pressure on pay," Macquarie Group analyst David Trone wrote.
Goldman Chief Financial Officer David Viniar said that the company tried to "balance the needs of the public versus being fair to our people" and that he does not expect many employees to leave in protest.
Morgan Stanley, which added 15,000 employees in June through its Morgan Stanley Smith Barney wealth management joint venture, set aside $14.4 billion for pay, less per employee than in 2007. Bank of America Corp. and Citigroup Inc. do not break out compensation data for their investment banking units.