Andrew Cuomo, who is running for governor of New York State without having announced it, is denouncing Wall St. because of its big pay packages while in his current role as state attorney general. His office recently released a report that showed that nearly 5,000 employees at the nation’s nine largest banks made more than $1 million last year. This concerns Cuomo, of course, because Wall St. was in the process of losing hundreds of billions of dollars and taking sums that were nearly as large from the federal TARP program while at the same time distributing rich compensation packages.
Cuomo is galled by the fact that Citigroup (C) gave 738 people bonuses of more than $1 million while the bank lost almost $27 billion. Added together, the bonuses at Citi hit $5.33 billion. The figures at Merrill Lynch and Bank of America (BAC), two firms that almost did not survive the credit crisis, were similar to the compensation numbers at Citi. The numbers were even higher at Goldman Sachs (GS) and JP Morgan (JPM), although they have paid back their TARP funds and may never have needed them at all.
Cuomo’s reaction was predictable, and, perhaps on the surface, fair enough. He said, “There is no clear rhyme or reason to the way banks compensate and reward their employees. They were bailed out by taxpayers and their employees were still paid well.”
Cuomo knows better, but his statement is solidly populist and, as the attorney general of a financially troubled state where most of these banks are headquartered, there is really nothing different he could have said.
Cuomo’s report did not have the revenue and profit figures by division at each of the nine companies covered in the document, and it should have had, even if it was only as an appendix.
Bank of America is as financially troubled as any of the firms that made it through the credit crisis, so its earnings should be a reasonable window into the financial dynamics of big banks. Some of B of A’s units did very poorly last quarter. Its credit card business falls into that category. So does its home loan operation. The bank also had some very successful divisions. Its investment bank was profitable. The firm’s wealth management and brokerage businesses also did extremely well. Without these successes, Bank of America would have had worse results and both taxpayers, who have a stake in the bank, and shareholders would have been badly hurt because bigger losses would have undermined the value of the company. The units of the company that did well kept the entire enterprise from coming close to failing.
Cuomo’s concerns are reasonable. A lot of the people who made $1 million probably did not deserve it. Banks have had a habit, one which goes back generations, of sometimes paying their most senior and most talented people too well, even if they turn in weak performances. That is part of the banking culture and it is a part that has always struck the public as heinous. Government officials have seen this behavior as an excessive draw on money that should go to shareholders.
A lot of the people who got $1 million or $5 million or $10 million last year earned it. Some of them were investment bankers, money managers, and M&A executives. They made their companies hundreds of millions of dollars. That was not enough to offset huge losses, but it was a set of sandbags at the dike when the water was pouring in.
Cuomo should do himself and everyone else a favor. He should ask the nine banks to look at the performances of the 5,000 people who made these large bonuses and ask which of them made their employers large profits and which did not. Once that information is compiled and attached to Cuomo’s report the public and Congress will have something worth looking at.