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Bank bonuses are bouncing back, at least to some extent.
To be sure, they're not climbing to the heady levels of three or four years ago. And for many bankers, a bigger portion of their bonus pay will be tied to company stock and isn't immediately spendable, a nod to populist anger about perceived fat cats on Wall Street. Still, there is some cause for celebration inside the Charlotte towers of Bank of America and Wells Fargo.
At Bank of America, employees have been learning this month about their bonus pay for 2009 and are set to receive the money starting Monday. In general, the bonuses are expected to be better than last year's payouts, which were down by 60 percent or more from the previous year.
Employees at Wells Fargo won't get their bonuses until next month, but the bank says that its total pool for bonus and commission pay is up about 66 percent over last year.
While politically sensitive nowadays, the payouts are a critical part of personal income - and consumer spending - in Charlotte, where the two banks have about 34,000 employees. In Mecklenburg County wages earned by financial workers fell by about $650 million, or one-third, in the first quarter of 2009 from the prior year, a dramatic example of the impact of diminished bonuses.
Observers are carefully watching how Wells Fargo handles the payments this year. This will be the first time Wells has been solely in control of bonuses for Wachovia's former investment banking and capital markets businesses, which have about 1,000 employees in Charlotte. Before former Wachovia CEO Bob Steel departed at the end of 2008, the bank had already decided to pay only about 20 percent of bonus targets.
As one local banker put it: "It's the $64,000 question as it relates to Charlotte."
In Charlotte, the nation's No.2 bank town, the bonuses help drive the city, funding charitable giving, the real estate market, retail and other aspects of the economy.
At Lions Jewelers in Phillips Place, a high-end shop that has benefited in past years from bonus season, manager Tonda Rifkin is glad that sales are up compared to the past two years, but she isn't sure if it's related to anticipated bank bonuses.
"You used to hear clients mention that they had received or were getting a bonus, and you just don't hear the bonus talk any more," Rifkin said. "Maybe they are getting a bonus and they're just not talking about it as much."
At Foreign Cars Italia of Charlotte, where cars run from about $100,000 to $1 million or more, bank bonus season used to provide a boost every February. But Gary Furnas, a sales consultant at the dealership, said he hasn't been involved with a sale to a bank employee since November 2008. That customer, a Bank of America employee, bought a black Ferrari, but then kept it on the lot for two months because he worried that it was too flashy. It wasn't a matter of money - "he could have bought four or five of them if he wanted," Furnas said.
In the end, the customer asked the dealership to resell the car, and he opted for a less showy Maserati instead.
"He said he was getting too much grief from his co-workers, that he couldn't be seen driving it around his neighborhood or in the bank parking lot," Furnas said.
Employees at luxury retailers aren't the only ones who suffer when bonuses fall. At the Charlotte Rescue Mission, executive director Tony Marciano said that one donor, the owner of a small business, used to donate $4,000 to $8,000 a year. This year, he walked up to Marciano and gave him $40 in cash and said that was all he could do.
"He looked at me and said, 'Tony, my business has been so far off.' And he made the comment that it was because the bank bonuses were removed," Marciano said. "It wasn't that he didn't have a heart for us."
The story shows how Charlotte's economy is tied to the bank bonuses, Marciano said, from the bankers who get them, to the businesses that they frequent, to the nonprofits those businesses donate to.
"It's a cascading effect," Marciano said.
In determining bonuses, banks have a delicate balance to strike, between retaining hardworking employees and ameliorating complaints from taxpayers and lawmakers still angry over the 2008 bailout loans, even though most of the big banks have repaid the money.
Last month, when reports of big Wall Street bonuses first started leaking, President Obama called them "obscene," and New York Attorney General Andrew Cuomo ordered all the major banks to turn over information on how they pay incentives. Cuomo's office is expected to release the data this week.
Symbols of excess
Though bank bonuses are just a chapter in the story of what caused the financial crisis, they have become a lightning rod and a symbol of excess.
On a deeper level, Obama administration pay czar Ken Feinberg and other politicians are pushing for a fundamental transformation. They would have bonuses coming less in cash and more closely tied to stock, and also have them paid out over the long term. That way, executives' fortunes are more closely aligned with their shareholders', and they can't profit off ideas that sound good but turn disastrous.
Banks are responding by changing their bonus structure, though it's impossible to tell if the changes will be permanent.
"No matter what Bank of America or Wells Fargo does, somebody's not going to be happy," said Ray Groth, co-founder of the Directors' Education Institute at Duke University. "If they give out too much cash, which I think the employees would prefer, then they're going to be criticized in the newspapers. If they give it primarily in shares, how does that affect morale? What kind of dilution am I looking at vis-a-vis the existing shareholders?"
What makes the banks' balancing act even harder is the relativity of the issue. For example, Goldman Sachs announced last week that chief executive Lloyd Blankfein's bonus pay would be cut dramatically - but he'll still get a payout of $9 million, not exactly Main Street standards.
New BofA bonus structure
While Bank of America is the bigger bank, Wells Fargo has more workers in Charlotte - 19,000 to 15,000. Wells also has a larger presence in investment banking and capital markets here, a business that for Bank of America was migrating to New York even before last year's Merrill Lynch acquisition.
Bank of America has said it pays year-end bonuses to half of its 10 "bands" of employees , but the payouts that get the most attention are for investment bankers and traders who help companies issue stocks and bonds, trade securities and advise companies on mergers and acquisitions.
Bank of America this year changed the way it awards bonuses to investment bankers, in an attempt to tie pay more closely to performance. The bonuses that Bank of America will award Monday will generally be about 25 percent cash and 75 percent tied to stock, said spokesman Bob Stickler.
The higher-ranking bankers will be paid the least cash, with some getting as little as 5 percent cash.
Also this year, the bank put "clawbacks" on employees in global markets and global trading, provisions that allow for reclaiming bonuses if failings surface later.
Stickler said that, on average, investment banking bonuses for 2009 performance will be higher than those awarded for 2008 performance, a down year. But they will be lower than most previous years.
He declined to comment on the size of the bonus pool, though some reports, citing unnamed sources, have said the bank will pay investment-banking employees from a bonus pool of about $4.4 billion, or an average of $400,000 each.
Investment banking has been a bright spot for the bank this year. While the overall bank lost $2.2 billion when counting preferred dividend payments, the global banking and global markets units both turned in profits.
Wells pool: $8 billion
The Wells Fargo board will meet in late February to approve the bonus pool, and employees will find out about their bonuses in early March. Employees are uncertain what to expect, but the hope is that the payouts will be better than last year's diminished bonuses.
The March payout is a little later than usual for Wachovia and for most investment banks, reflecting Wells Fargo's more traditional commercial banking culture. The date varies year to year but doesn't fall later than March 15, Wells spokeswoman Melissa Murray said.
According to its latest earnings report, Wells had $8 billion in its pool for total bonuses and commissions, up from $4.8 billion last year for the combined bank. Those numbers include year-end bonuses for bankers as well as commissions for mortgage consultants and stockbrokers. However, some of that money has already been paid out, because commissions are awarded on a monthly or quarterly basis.
Wells reported a profit of about $8 billion in 2009, counting preferred dividend payments.
The San Francisco-based bank has disclosed that some portion of bonuses for 2009 will be paid in unrestricted stock, but hasn't determined what size bonus would trigger the requirement that part of it be paid in stock, Murray said.
Wells said it is too early to comment on clawback plans, but noted its bonuses include provisions that eliminate payments for those who violate company policies, and recoup funds if they violated laws.
