Wednesday, December 3, 2008

Merrill Lynch Has Trouble With Math

A Bloomberg story this morning claims that Merrill Lynch is said to be cutting bonuses by 50% this year.  I'm sure that headline was meant to be eye-catching, so that readers are shocked by the huge haircut Merrill's bankers will be forced to stomach.  What caught my eye, however, was the fact that Merrill's revenues dropped 96% in the nine months ended September 2008 from a year earlier.  Investment banks generally pay out 50% of revenues as compensation.  Something about the math here doesn't really add up.  Revenues shrink by 96%, the firm loses over $20 billion, nearly fails, and is forced to merge and get various bailouts from the government.  Yet somehow, Merrill is only reducing bonuses by 50% from last year, which was a record year for pay?  The article clarifies that bonuses account for the bulk of a year's pay for most traders and investment bankers.  While that is certainly true, we are talking about people who have base salaries of $150,000 or so, and then receive bonuses of like $650,000.  Let's not be mistaken that anyone here is working for commissions alone.  So while our lawmakers argue over putting GM out of business, the recipient of $10 billion in cash from Mr. Paulson and multiple billions in loans via Mr. Bernanke, is busy handing out bonuses.  Nice.    


Anonymous said...

Once again K10, your investigative reporting has told the truth. The little confidence I had left in the damn bailouts is now history.

A said...

did they count that 10 billion as revenue?? better yet, profit! lol