More Outrage Over the Merrill Bonuses

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More Outrage Over the Merrill Bonuses
March 12, 2009 06:55 PM ET | Rick Newman | Permanent Link | Print


The last time Merrill Lynch tangled with the New York attorney general, it didn’t go so well. In 2002, after a bruising battle with Eliot Spitzer over conflicts between its research and investment banking divisions, Merrill finally agreed to widespread reforms, paid a $100 million fine, and issued an embarrassing “statement of contrition.”

Apparently the honchos at Merrill think it will go better this time. After all, the public is really on their side these days, since we all sympathize with the meager $3.6 billion in bonuses Merrill’s deal-makers had to make due with this year. And that $20 billion in taxpayer funds that went to help cover Merrill’s gargantuan losses in January, after Bank of America took it over – we’d really prefer they took more of our money. Who knows, with BofA still reeling, maybe we’ll still get the chance.

The Merrill bonus brouhaha is a crystallizing episode in the Great Financial Meltdown. To most Americans, it’s absurd for a company that lost nearly $28 billion in 2008, nearly collapsed, and survived thanks only to a taxpayer-subsidized rescue, to lavish million-dollar bonuses on dozens of executives. New York’s current attorney general, Andrew Cuomo, thinks so too, which is why he’s sunk his teeth deeply into Merrill and its new corporate parent. He’s investigating whether the bonuses are fraudulent, since New York law requires compensation to be in proportion to a firm’s financial success. “As Merrill teetered on the brink of insolvency, it made gigantic bonus payments,” he charges in a memorandum filed recently in New York State Supreme Court. “There is a serious question as to whether the bonuses were excessive.”

This can only end badly for Merrill and BofA, with repercussions that could ricochet throughout Wall Street and dramatically change established practices. Cuomo wants a full list of who got bonuses. Merrill and BofA have dug in their heels, refusing to disclose the bonus recipients, even though a recent Wall Street Journal story outed some of them. A huge confrontation is building. Here’s the latest:

The bonuses were secretly planned way ahead of time. In his memorandum, Cuomo claims that the September 2008 merger agreement between Merrill and BofA included an undisclosed provision allowing Merrill to disburse up to $5.8 billion in bonuses. That shows that Merrill honchos were already scheming up ways to pay out millions at the very moment the firm was on the verge of a fatal run, just like the one that drove Lehman Brothers into a chaotic bankruptcy. And doing so with the blessing of their future Bank of America bosses.

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