Kucinich to probe $3.6 billion in Merrill Lynch bonuses
After TARP funds set, 696 employees got bonuses of $1 million or more
Even as Merrill Lynch & Co. bled money and warily eyed a merger with Bank of America, company executives were preparing for a windfall.
Following the federal government's promise of $10 billion in TARP funds to buoy the ailing firm through it's roll-up, Merrill paid out $3.6 billion in bonuses: a package 22 times larger than compensation given by AIG, said Congressman Dennis Kucinich's offices in a Monday release.
The congressman's staff sent letters to Ken Lewis, CEO of Bank of America, Ben Bernanke, Chairman of the Federal Reserve, and Neel Kashkari, Interim Assistant Director of Financial Stability, requesting documents related to communications on Merrill Lynch compensation packages.
Bank of America, which absorbed Merrill in 2008, received an additional $25 billion from the government to facilitate the merger.
"[T]he Merrill Lynch Compensation Committee awarded these payments on December 8, 2008, before the end of the fourth quarter, in which Merrill lost more than $15 billion, and after Merrill was informed that it would be allocated $10 billion in TARP funds," the congressman's office said in an advisory.
"These payments raise significant questions about what information Merrill Lynch and Bank of America executives shared with federal officials that oversaw the Merrill acquisition by Bank of America. Ordinary shareholders were unaware of the details of the bonus payments, but the U.S. government held 800,000 shares in preferred stock and warrants at the time and federal officials regularly met with both Bank of America and Merrill Lynch executives," the release read.
North Carolina Attorney General Roy Cooper recently targeted the Merrill bonuses with an investigation. "We're going to do what we can to hold people accountable," he told ABC Eyewitness 11.
"New York Attorney General Andrew Cuomo has also been investigating executive bonuses at Bank of America and other companies," noted WSOCTV. "Cuomo managed to get executives at financially troubled insurance giant AIG to return some of the $165 million in bonuses that were handed out after the company accepted a federal bailout."
"The bonuses were awarded despite the fact that Merrill lost $25 billion in 2008 and posted greater than anticipated fourth quarter after-tax losses of $5 billion dollars," reported ABC News.
"Sources tell ABC News that a non-public agreement between Merrill and Bank of America was signed September 15th, 2008. The two companies initially agreed that Merrill Lynch could award up to $5.8 billion in performance bonuses, an amount that was later reduced to "under $4 billion" following a conversation between Thain and Bank of America's Steele Alphin, the top aide and close confidant of the bank's CEO, Ken Lewis, the sources said."
"Cuomo found Merrill paid its four top bonus recipients $121 million and doled out bonuses of $1 million or more to 696 employees, as the firm lost $15 billion in the fourth quarter," reported CNN. "It is not clear how much each of the subpoenaed Merrill executives received in bonus payments."
The full copy of Congressman Kucinich's letter to Federal Reserve Chairman Ben Bernanke follows.
Dear Mr. Bernanke:
As you know, Merrill Lynch & Co. ("Merrill") paid out several billion dollars of bonuses in December 2008, before their merger with Bank of America Corporation (BOA) was consummated but after Treasury allocated $10 billion in Troubled Assets Relief Program (TARP) funds to Merrill and after Treasury’s initial injection of $15 billion in BOA. In contrast to the bonuses awarded by AIG, the Merrill bonuses constituted a significant proportion of allocated TARP funds, were not locked into place by preexisting contract, and were performance, not retention, in nature. They also raise significant questions about what you and other Federal Reserve officials involved in the merger of BOA and Merrill knew about the Merrill bonuses.
The Merrill bonuses were 22 times larger than those paid by AIG ($3,620 million versus $165 million). They were also very large relative to the TARP monies allocated to Merrill. The Merrill bonuses were the equivalent of 36.2% of TARP monies Treasury allocated to Merrill and awarded to BOA after their merger. The bonuses, awarded mostly as cash, were made only to top management at Merrill. To be eligible for the bonuses, Merrill employees had to have a salary of at least $300,000 and attained the title of Vice President or higher.
The Merrill bonuses were determined by Merrill’s Compensation Committee at its meeting of December 8, 2008, shortly after BOA shareholders approved the merger but before financial results for the Fourth Quarter had been determined. This appears to be a departure from normal company practice, since the type of bonus Merrill awarded was a performance bonus that, according to company policy, was supposed to reflect all four quarters of performance and was paid in January or later. In this case, however, the bonuses were awarded in December before Fourth Quarter performance had been determined.
Shortly after the award of the Merrill bonuses, Merrill/BOA determined that the losses for Fourth Quarter performance at Merrill were enormous. By January, BOA would announce Fourth Quarter losses at Merrill in excess of $15 billion.
BOA had knowledge of and influence over Merrill’s intent to pay out bonuses even before BOA took control of Merrill. According to the merger agreement of September 15, 2008, Merrill’s bonus awards were to be made “in consultation with [Bank of America].” In an undisclosed attachment to the merger agreement, made public only recently by the Attorney General of New York State, Bank of America permitted Merrill the right to award up to $5.8 billion for calendar year 2008 performance (See Merger Agreement Attachment, attached hereto).
While prior to the merger BOA knew of Merrill’s intent to award billions of dollars in performance bonuses before the Fourth Quarter earnings were calculated, BOA did not disclose the details it possessed about the Merrill bonuses and the unusualness of the timing of those bonuses to its shareholders prior to their vote on the merger.
This raises important questions about what you knew about the Merrill bonuses, and what you did with your knowledge. If ordinary BOA shareholders were ignorant of the details of the Merrill bonus arrangement, was the U.S. government as well? At the time, the U.S. held 800,000 shares in preferred stock and warrants in BOA. Unlike ordinary shareholders, you and then-Secretary Henry Paulson met on at least several occasions with Ken Lewis of BOA in late 2008. For instance, on December 17, 2008 and again on December 19, 2008, BOA CEO Ken Lewis met with you to explore withdrawing from the deal to acquire Merrill. However, you and Mr. Paulson reportedly impressed upon Mr. Lewis the importance of upholding his commitment to the deal. Additionally, Treasury released in the following month another $20 billion in TARP funds to BOA and guaranteed $118 billion in troubled assets against loss.
In order to assist the Subcommittee with its investigation into what you knew about the Merrill bonuses, when you knew it, and what you did with your knowledge, I hereby request the following documents:
1) All documents and communications between employees of Bank of America and the Federal Reserve, and Merrill Lynch and the Federal Reserve, related in any way to Merrill's compensation packages, bonuses, and/or Bank of America’s receipt of TARP monies, for the period from August 1, 2008 through January 19, 2009.
The answers the Subcommittee seeks will be of interest to the American public, who are rightly concerned about how recipient firms have used TARP monies, and how well the Federal Government has monitored the use of those funds and safeguarded them from waste and abuse. The Oversight and Government Reform Committee is the principal oversight committee in the House of Representatives and has broad oversight jurisdiction as set forth in House Rule X. An attachment to this letter provides information on how to respond to the Subcommittee’s request.
Dennis J. Kucinich
Domestic Policy Subcommittee
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