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  1. Wealth
October 2, 2008

Fiddling the figures

By Spear's

Bankers win when they win, and win when they lose.

Bankers are paid obscene amounts when times are good, but they get equally obscene amounts when they fail; heads they win, and tails they win again. This doesn’t sound right to anyone. And it doesn’t look right either – see this chart:

Bank                       CEO                           Years                      Pay            Exit Pay*

Lehman Brothers    Dick Fuld, Jnr.         1993-2008           $466,000,000    $62,000,000

Citigroup                 Chuck Prince           2003-2007           $53,000,000      $40,000,000

Merrill Lynch          E. Stan O’Neal        2001-2007            $70,000,000    $161,000,000

Bear Stearns            James Cayne           1993-2007            $232,000,000    $61,000,000

* includes stock sales

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(Source: various, as quoted by IHT on 25/09/08)

Not only is there a huge disparity between the Pay levels, but also between the Exit Pay; and also between the size of the four operations and their profitability and losses prior to exit: in 2006, the last year before the credit crunch, the average levels of quarterly profits were as follows:

Lehman              $1 billion-

Citigroup            $5 billion+

Merrill Lynch     $1 billion-

Bear Stearns       $½ billion-

On these figures, Chuck Prince of Citigroup should have received most, not the least.

The average quarterly losses when these banks started to post losses were as follows:

Lehman               $3 billion+   for 2 quarters

Citigroup             $6 billion-    for 3 quarters

Merrill Lynch      $5 billion-   for 4 quarters

Bear Stearns        $1 billion-   for 1 quarter

On these figures, Chuck Prince of Citigroup’s Exit Pay should have been much less, not more than, his normal Pay; and Stan O’Neal of Merrill Lynch’s Exit Pay should have been the smallest of all, not the largest.

What these figures show is that there is no such thing that even resembles a market for CEO’s pay and severance pay in this sector, which appear to be governed by the law of the jungle, with he who wields the biggest club (i.e. lawyer) coming off best.

What do you think?

Should shareholders approve boardroom pay, in advance?

Should pay and bonus’s in the financial sector be regulated?

How and when should bonuses be earned and paid?

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