"The human contribution is the essential ingredient. It is only
in the giving of oneself to others that we truly live.” —Ethel Percy Andrus, Educator

London Bankers Falling Down              

It is officially “banker hell” in Her Majesty’s home town. The U.K. government revealed plans to levy a 50% supertax on banker bonuses. Alistair Darling, Chancellor of the Exchequer, is not such a darling after all to London bank executives.

Darling stated that banks should not be paying big bonuses, but using new profits to rebuild capital reserves. To remedy that situation, bankers will be charged the 50% tax on top of the income tax they already pay.

Needless to say, bankers are stomping mad and claim that the new rules will inhibit investment banking in the U.K. One banking CEO declared that the relationship “between government and business is broken.” London bankers are threatening to move to the U.S. or Switzerland where bonuses are not regulated or taxed to the same degree.

The U.S. “Pay Czar,” Kenneth Feinberg is limiting bank bonuses this side of the Big Pond, but does not have the power to “supertax” any payments. In response, U.S. banks are issuing deferred compensation in the form of vested stocks and other non-cash payments.

In the U.S., the House of Representatives had voted to tax government subsidized AIG executives at 90%. The U.S. Senate did not sign on to the House bill. The tax would be seen as unconstitutional in the U.S., as there cannot be one standard of tax for one group and not for another. The tax would be undoubtedly be legally overturned in court; consequently it never made it out of Congress.

The British move represents a sharp departure from the soft American view. The dilemma in the U.S. revolves around the balance between free enterprise and public money. In the United Kingdom, the London government has officially decided that banker bonuses are public monies. In the U.S., bankers at formerly bailed-out firms claim their bonuses are private monies. The conflict has been resolved to date in favor of U.S. bankers.

However, the London “supertax” action is indicative of the European mood expressed by French President Nicolas Sarkozy and British Prime Minister Gordon Brown. Sarkozy supported the “supertax” although has not instituted the same levy on French bankers. Brown said the tax “should be considered a priority.”

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Risky Business 

One of the key complaints in the past year’s charges against Wall Street firms was the policy of paying employees for reckless risk-taking that ended in huge losses for firms. Execs who lost billions of dollars over the last two years were compensated as if those profits were real. They are blamed for trading the risks and losses to unsuspecting investors and the general public.

Credit Suisse (CS), formerly Credit Suisse First Boston (CSFB), has headquarters in Zurich, London, and New York. CS is the first large investment bank to change the policy of rewarding risk. Tying compensation to risky assets, the new payout structure links “bonus payouts for 2,000 investment bankers to some $5 billion in illiquid and often opaque assets, which have tumbled in value and been blamed for deepening the credit crisis.”

The investment bank’s “managing directors and directors will receive 70-80 percent of their deferred equity compensation in so-called partner asset facility (PAF) units that will be linked to the performance of a pool of illiquid assets."

The bank lost $2.5bn dollars in October and November 2009 and was forced to lay off 5,300 employees or 11% of its workforce. Unlike other firms that fire workers to add to the bonus pool for those remaining, the French bank will require investment bankers who took reckless risks “to hand back part of any cash bonus in subsequent years.”

Reuter’s reports that cash retention awards "will be subject to repayment of the award in the event that a claw back event occurs, such as voluntary termination of employment."

“Clawbacks” have become increasingly part of Wall Street compensation policy across investment banking divisions where trading risk is part of daily operations. From 2010 on, any Credit Suisse employee that sells/trades/securitizes faulty products to investors will be personally responsible to pay back the loss. The new policy will undoubtedly add an element of caution to trading and securitization strategy.

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No Cash For You

Goldman Sachs has taken a lot of heat in the past few months for earmarking $16.7bn for year-end bonuses. In an unprecedented move, Goldman yielded to pressure from unhappy shareholders and rethought compensation plans.

After behind-closed-door meetings with the investment banking giant’s top shareholders, Goldman Sachs has decided to withhold cash compensation for its top 30 executives including CEO, “Doing God’s Work” Lloyd Blankfein. Instead top execs will be paid in company stock only and be vested (not able to sell) these stocks for five years. The firm hopes the new comp reforms will discourage reckless risk-taking.

Goldman has been under pressure from large shareholders who were threatening mutiny if compensation reform did not occur. U.S. taxpayers, Goldman’s largest shareholders, earlier this year were calling for heads to roll at the publicly traded firm. Public sentiment runs high that Goldman Sachs only exists due to the bailout efforts of the Fed and the Treasury. Without conceding that point, Goldman responded to the growing rage against the firm’s regained profitability by changing the terms of compensation. Execs get paid cash salaries of $500K-$1m and record high bonuses, only this time they don’t see a nickel of it for five years—that is if the firm remains profitable.

A  Goldman spokesman stated that the new compensation structure “for the 30 most senior people at Goldman Sachs represents a closer alignment than there has ever been of incentives and compensation with the interests of shareholders and the public.”

It definitely calmed irate shareholders down and warded off a potential storming of the Bastille.

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Mack the Knife

Bonuses for rescued financial firms have been contentious issues this year. AIG, the insolvent global corporation blamed for insuring much of the bad securities in the market, was threatened with a 90% tax on bonuses earlier this year. Although it never happened, the threat was indicative of the powerful public rage against bank bonuses in the wake of the highest unemployment in decades. While some finance execs feel entitled to big pay despite their floundering firms, others are changing the rules and taking responsibility.

Morgan Stanley’s CEO, John Mack, is believed by many to be one of the good guys on the Street. Mack long espoused a “one firm” ethic at Morgan where employees are encouraged to function as a cohesive team. The word is you either love him or hate him. Some Street firms might just hate him now for his latest statement, but others applaud his courage and the appropriateness of his actions.

Mack has taken the unprecedented move by an investment banking Chief Exec to voluntarily forgo his annual bonus for the third year in a row due to “the unprecedented environment and the extraordinary financial support governments provided to our industry.”

The Wall Street Journal reports that, “Morgan Stanley is making changes to how employees get compensated this year, such as factoring risk into compensation decisions for sales and trading teams, consistent with guidelines from the Federal Reserve and the Group of 20 leading nations…The firm is taking efforts to align compensation with long-term success of the firm. Senior executives in revenue-generating divisions of the firm will have a portion of their year-end compensation linked to performance over the next three years.”

Mack warned that the problems that brought the industry and the economy to crisis have not been resolved. “We still need a risk regulator with the tools and authority to ensure risk-taking never again jeopardizes the entire financial system. No firm should be considered 'too big to fail.' If a firm mismanages its risks, regulators need the authority to unwind it in a way that minimizes instability to the system."

Hallelujah! A voice of reason on Wall Street.

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Financial Crisis Inspires Doing Well by Doing Good

Nothing has put the mandate for doing well by doing good more front and center than the financial collapse one year ago. For three decades, Greed has been Good! Better than good, it was great! 

In America in the 1930s, a chicken in every pot was the social goal. People in the Great Depression were literally starving.  Anyone with parents or grandparents who lived through those times is familiar with stories of struggle and strife. In the 1940s, defending our freedom was the call of duty for every citizen. War brides dreaded the sight of uniformed men at the door and mothers prayed for their sons to return home alive.  Honor and freedom were the goals citizen’s strove for on both sides of the Atlantic. In the 1950s, a safe and secure life climbing up the corporate ladder was all any family could want. Moms stayed at home baking apple pie and dads worked to put two cars in the garage. Father’s Knew Best, kids were respectful, and a common morality ruled.

 In the 1960s, things got a bit more real again. A throwback to the 1940s, principles of right and wrong, justice and injustice threw the nation into a state of turmoil. We didn’t always believe the same thing, but at least we had beliefs. The 1970s brought with it a new restlessness in post-war America. There was no cause to fight for anymore. The apathy led to the Culture of Greed.

Oliver Stone made a movie ironically intended to expose the superficiality of the world of finance. Instead the Hollywood version of the money machine made Greed a Star. Gordon Gekko became an American idol and profit at any cost became glamorous.

It didn’t matter how you made money anymore, just that you made it. You could beg, borrow, and steal to get to the top and it was all acceptable. It was simply “good” business…

Now a new kind of good business is breaking through to the other side. No longer a fringe idea for those outside of society, the Business of Good is one of the biggest industries in the New Economy.

The Wall Street Journal, one of the Greed culture’s loudest voices, reported this week on the move of talented college grads out of finance and into “doing good” professions. A MIT graduate student who originally intended to go to Lehman Brothers switched his plan to engineering and solar-power technology. New grads are flocking in droves to social entrepreneurship careers, social advocacy start-ups, better world businesses, and environmentally sound green business endeavors.

Phew! More proof that there is silver lining in every dark cloud.  And it only took a major economic catastrophe to do it! 

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Calling The Employee Free Choice Act “an investment in our shared economic future," a group of Investment Fund Managers publicly declare their support for employees’ right to unionize.  Currently, under U.S. labor law an employer has control over whether unionization should be determined by secret ballot or majority sign-up. The right to unionize is a basic right of workers, employers (who are often anti-union) should not hold legal rights over workers to decide their future collective bargaining power. Workers may decide for themselves more appropriately how they wish their interests to be served. While this adjustment in labor law may seem fair and reasonable to some, many large companies have fought the proposed legislation introduced by Democratic Senator Tom Harkin and Representative George Miller.

 

  TLOA Fund

Wall Street traders and market movers tend not to speak publicly about love. Not so with the TLOA Fund founded by top Wall Street managers. TLOA stands for "To Love One Another." The Fund is based on the principle of brotherly love expressed by Father Mychal Judge, the first official casualty of the September 11, 2001 attacks. To honor Father Mike and continue his dedication to those in need the Fund “supports and empowers afflicted youth, and helps those who suffer from addiction to lead healthy and productive lives.” The Fund was founded by James Solano, a director for Deutsche Bank’s Institutional Capital Markets and Michael Walker, Senior Distressed Trader at Citadel Investment Group, one of the largest hedge funds in the industry. TLOA’s non-Wall Street co-founder and director is Steven McDonald , the decorated New York City detective who was shot and permanently paralyzed in the line of duty in 1989. McDonald has spent the last two decades spreading his message of forgiveness and non-violence.
TLOA Fund supports, among others, the CREATE Inc. Foundation, a social service organization in Harlem headed by Father Christopher Keenan, Fr. Benedict Taylor, and the late Father Mike. (www.tloafund.org, www.createinc.org)

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FIVER Children’s Foundation

Thomas Tucker, former head of Global Fixed Income Sales at Lehman Brothers, was searching for deeper meaning in his life. Fulfilling a life-long wish to make a difference in the lives of vulnerable children, Tucker quit Wall Street and created the Fiver Children’s Foundation in 2000. Fiver supports “economically impoverished” children personally and academically for ten years through their year round program. At risk children with academic potential enter Fiver’s program at age eight and continue in the program through high school graduation. The children attend a summer camp program in upstate New York with emphasis on character and self esteem development and then continue to be academically supported throughout the year. The Foundation is supported by current and former Lehman Brothers directors, investment bankers, and hedge fund managers. (www.fiver.org)

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ROBIN HOOD Foundation

The Robin Hood Foundation aims to resolve poverty in New York City by attacking “root causes” and creating programs for early prevention of cyclical poverty. The Foundation supports inner city children and families who suffer the harsh realities of poverty through a variety of innovative initiatives. According to Andy Serwer of Fortune Magazine, “Robin Hood was a pioneer in what is now called venture philanthropy, or charity that embraces free-market forces. An early practitioner of using metrics to measure the effectiveness of grants, it is a place where strategies to alleviate urban poverty are hotly debated, ineffectual plans are coldly discarded, and its staff of 66 hatches radical new ideas.” The Foundation was founded by hedge fund maverick Paul Tudor Jones of Tudor Management with Glenn Dubin, founder of Highbridge Capital, a global hedge fund with seven billion dollars under management. Jones and Dubin recruited some Wall Street heavyweights to underwrite Robin Hood programs including current and former board members, Goldman Sachs CEO, Lloyd Blankfein and Lehman Brothers CEO Dick Fuld. Some of Robin Hood’s programs include support for HIV/Aids victims, homeless shelters, abused women shelters, food banks, and charter schools in impoverished neighborhoods. The board members underwrite all operating costs out of their own pockets. Thus 100% of donations go directly to support projects. It proves greed is not always “good” on Wall Street. Sometimes compassion and shared wealth make the best trade. (www.robinhood.org)

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HEDGE FUNDS WHO CARE

According to its website, “Hedge Funds Care (HFC) is proud to be the only business group solely devoted to combating child abuse, and in nine years has made a powerful contribution to saving children.” Rob Davis, formerly of Montgomery Prime Brokerage/Bank of America Securities Oppenheimer Institutional Equity sales and current partner of Merlin Securities, founded HFC in 1998. That was the same year as the hedge fund debacle of Long Term Capital managed by John Meriwether brought down the global capital markets. In response to the event, Davis felt it was time for hedge funds to give back. Hedge Funds Care has created an “alliance of hedge fund industry professionals dedicated to protecting children from abuse and neglect.” The Fund supports non-profit organizations that provide child abuse counseling and prevention services. Those most fortunate helping those most vulnerable reveals that some hedge fund managers do indeed care. (www.hedgefundscare.org)

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