Ailing Banks Favor Salaries Over Shareholders

Finding the winners on Wall Street is usually as simple as looking at pay. Rarely are bankers who lose money paid as generously as those who make it.

But this year is unusual, Eric Dash reports in The New York Times. A handful of big banks that are struggling in the postbailout world are, by some measures, the industry’s most magnanimous employers. Roughly 90 cents out of every dollar that these banks earned in 2009 — and sometimes more — is going toward employee salaries, bonuses and benefits, according to company filings.

Amid all the commotion over the large bonuses that many bankers are collecting, what stands out is not only how much the stars are making. It is also how much of the profits lesser lights are taking home.

To compete with well-heeled rivals, banks like Citigroup are giving their employees an unheard-of cut of the winnings. Citigroup paid its employees so much in 2009 — $24.9 billion — that the company more than wiped out every penny of profit. After paying its employees and returning billions of bailout dollars, Citigroup posted a $1.6 billion annual loss.

Granted, the bankers and traders who work for Wall Street’s biggest moneymakers are still collecting the richest rewards. But this bonus season, banking executives are rethinking how to divide the spoils.

Goldman Sachs, that highest of highfliers, is doing the unthinkable. It is giving its employees an unusually small cut of its profits — about 45 cents out of every dollar — even though its paydays will, in dollar terms, rank among the richest of all time.

That 45-cent figure, known as the payout ratio, represents the amount of compensation that Goldman is meting out relative to the pool of profits available for compensation. Until recently, the ratio for most Wall Street banks hovered around 60 cents of every dollar, in line with other labor- and talent-intensive industries like retailing and health care.

Most Americans would be thrilled to collect a Goldman-style paycheck. If compensation were spread evenly among the bank’s 36,200 employees, each would take home about $447,000.

But to keep up with the Goldmans, laggards like Citigroup are handing out fat slices of their profits, leaving little left over for their shareholders. Citigroup is, in effect, paying its employees $1.45 for every dollar the company took in last year. On average, its workers stand to earn $94,000 each.

Bank of America, meantime, is spending 88 cents of every dollar it made in 2009 to compensate its workers. At Morgan Stanley, that figure is 94 cents.

JPMorgan Chase, which has fared better than those three, paid out 63 cents of every dollar.

Citigroup, Bank of America and Morgan Stanley — all of which have repaid their federal aid — defend their pay practices. Press officers for the banks say a number of factors, from one-time accounting charges to the constant need to lure and retain top producers, drove decisions about compensation.

But some analysts and investors say these and other banks are rewarding their employees at shareholders’ expense. The banking industry is quick to pay its workers when times are good but slow to penalize them when times are tough. Pay for performance? Not on Wall Street, the critics say.

“The investor in America sits at the bottom of the food chain,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the mutual fund giant. “The financial industry gets paid before their clients, and we get paid whether times are good or bad.”

Institutional investors are alarmed by what they characterize as excessive rewards for bank employees. While banks are increasing salaries and bonuses for many employees, many have yet to restore dividends that were cut during the financial crisis.

“It’s not a fair shake,” said John A. Hill, chairman of the trustees at Putnam Funds, another big mutual fund company. “I think the shareholders who paid for building that franchise should be getting a bigger share of the franchise’s profits.”

Even now, after all those big bonus numbers, the pay-to-profit ratio for the financial industry might come as a surprise to many people. The five largest banks on Wall Street — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley — earned a combined $147.4 billion before paying compensation and taxes last year. They plowed back a combined $31.2 billion into their companies and returned a total of $2.1 billion to shareholders in the form of dividends. They paid $114.1 billion to their employees.

Wall Street giants like Goldman Sachs and Morgan Stanley traditionally set aside about half their revenue for compensation. Big diversified banks, like Citigroup and JPMorgan Chase, typically set aside about a third. Most banks have typically viewed compensation as the cost of bringing in new income, even though the main concern for most shareholders is profits.

At some banks, the relationship between pay and profit is a bit tenuous. In 2005, for instance, Morgan Stanley made a pretax profit of $7.4 billion. That year, compensation at the bank averaged $212,000 for each employee. Last year, Morgan Stanley made about $857 million before taxes. But compensation averaged $235,000 for each employee.

In other words, Morgan Stanley employees collected roughly 61 cents out of every dollar the bank made in 2005, and about 94 cents of every dollar last year.
Mark Lake, a Morgan Stanley spokesman, said that 2009 compensation per employee was the lowest in at least seven years if the business then looked as it did today, and that adding thousands of Smith Barney brokers and a large accounting charge led to a higher payout ratio.

Bank of America traditionally paid out a small sliver of its profits to workers and maintained a relatively high dividend. But the bank reversed course after its acquired Merrill Lynch and Countrywide Financial. Now Bank of America has more than doubled the share of earnings it sets aside for employees. It was forced to cut its quarterly dividend to a penny as a condition of its second government bailout and has yet to restore it.

Scott Silvestri, a Bank of America spokesman, attributed the higher compensation costs to a “change in the business mix” after the Merrill Lynch deal. “We must pay those, or we have no company,” Mr. Silvestri said.

Shareholder advocates maintain that Wall Street pay works in favor of management and employees rather than shareholders. The industry’s bonus culture is widely viewed as having helped foster the excessive risk-taking that led to the financial crisis.

In the three years before the crisis, the five Wall Street giants set aside a total of $295 billion in compensation. Had they not handed out bonuses or shifted more compensation into stock, pay experts estimate, those banks might have kept $118 billion of additional capital in the financial system. That is almost equal to the $135 billion of bailout funds that taxpayers poured into those five institutions.

“It’s heads I win, and tails they don’t lose too badly,” said Jesse M. Fried, a professor at Harvard Law School and co-author of “Pay Without Performance.”

Some investors and Washington policy makers argue that shareholders should get a say on pay, even if their vote is nonbinding. Mr. Bogle, of Vanguard, says big investors need to be vigilant.

“If the shareholders would wake up, executive compensation would not be what it is,” he said

Record winter casualties for US-led occupying forces

Last month 44 US and coalition troops were killed in Afghanistan—the bloodiest month of fighting recorded in the country’s winter season since the 2001 invasion. In previous years, the freezing temperatures and snowy conditions have seen a lull in the conflict between the US and NATO led International Security Assistance Force and anti-occupation guerrillas.

In January 2009 there were 25 coalition troop deaths; in the same month in 2008 14 deaths were recorded; while in January 2007 just two soldiers died. Last month’s violence followed record annual fatalities in 2009 for the occupation forces—520, compared to 295 in 2008.




The upsurge reflects escalating opposition among ordinary Afghans toward the foreign occupation and the rule of Washington’s stooge, President Hamid Karzai. President Barack Obama’s unfolding troop “surge” has also led to more clashes. An additional 37,000 US and coalition soldiers are due to arrive in Afghanistan up to August 2010, bringing the total number to more than 150,000, not counting private contractors and mercenaries. Obama’s escalation of the war is aimed at suppressing all resistance within the Afghan population in order to shore up Washington’s control over the country and its geo-strategic interests in the oil- and gas-rich Central Asian region.

Of the 44 foreign forces killed last month, 29 were American. Others were from Britain (6), France (3), Canada, Norway, Denmark and Spain. The majority died in the provinces of Kandahar and Helmand, on the southwest border with Pakistan. According to statistics maintained by the web site icasualties.org, improvised explosive devices (IEDs) accounted for 70 percent of the deaths.

A briefing prepared last December by Major General Michael Flynn, the senior US intelligence official in Afghanistan, noted the growing importance of IEDs in the war. In an article published January 25, CNN reported: “The explosives do for the Taliban what surface-to-air missiles once did for the Afghan mujahedeen fighting the Soviets—somewhat equalise the fight against a superpower, Flynn says.”

The growing number of IED attacks will inevitably deepen the crisis of morale afflicting US and coalition forces. Frontal insurgent attacks are met with massive firepower, including helicopter, drone and fighter plane bombing raids that frequently destroy entire buildings and sections of towns and cities. Responding to IEDs is a different question. The US-led troops are engaged in an unending colonial-style war, confronting a largely unseen enemy that enjoys the support or acquiescence of the civilian population.

Flynn’s intelligence report noted the growing number and strength of IEDs. In May 2008 most bombs weighed less than 25 pounds (11 kilograms), whereas now more than three-quarters weigh more than 25 pounds. The nature of the IEDs has also changed. Previously they were mostly adapted military ordnance such as shells, but now an estimated 85 percent are made from ammonium nitrate, a common fertiliser. Flynn’s briefing stated that Pakistan is the primary source of the chemical, with China and Iran “also significant suppliers”.

According to CNN, President Karzai last month outlawed the “use, production, storage, or sale” of ammonium nitrate.

Flynn reported that “security incidents”—including IED attacks, ambushes, mortar fire and missile strikes—typically numbered 500 a week in the second half of 2009, compared to an average of less than 40 in 2004. Only a small fraction of the escalating attacks are ever reported in the US and western media. The intelligence official concluded his briefing by noting that the insurgency was “increasingly effective” and could “sustain itself indefinitely”. He reported that the Taliban now has “shadow governors” in 33 of Afghanistan’s 34 provinces, up from just 11 in 2005.

Insurgents are combining increasingly effective IED and other guerrilla attacks on foreign forces with high-profile assaults on Afghan government buildings. On January 18, Taliban suicide bombers and fighters armed with grenades and other weapons paralysed the capital, Kabul, for more than five hours before US military and Afghan security forces regained control.

Insurgents launched a similar operation on January 29 in Lashkar Gah, the regional capital of Helmand. Six militants armed with suicide vests and machine guns were reported killed after launching an assault from a hotel near an army barracks at 10 am. Fighting lasted more than seven hours, during which residents of the city were advised to stay at home, before government forces, British soldiers, and NATO helicopters were able to repulse the attack.

“I was in my shop when I heard the loud noises from the fighting,” Haji Mohammad Karim told Associated Press. “We all closed our stores and went home. The city was like a ghost town. The only people on the streets were security forces.”

Like the Kabul offensive, the Taliban’s operation in Lashkar Gah highlights the Karzai administration’s extremely tenuous control over the country. For the US and NATO forces, it again raises questions regarding insurgent infiltration of the pro-government security forces. President Obama and his international allies have made any drawdown of foreign troops conditional on the organisation and training of a local military and police proxy force. But the demoralised rag-tag forces so far assembled have proven highly vulnerable to penetration by militants.

US and coalition forces face growing danger from within the ranks of their Afghan colleagues. The killing of seven CIA operatives in a suicide attack late last year by a Jordanian posing as a US intelligence asset was the most prominent of a series of security incidents. On January 29, two US soldiers were shot dead by their Afghan interpreter at a military outpost in the eastern part of the country. The interpreter was then killed by other US troops. Military officials attempted to downplay the incident, telling the New York Times that the Afghan acted out of “personal motives” and was a “disgruntled employee”.

Ordinary Afghans continue to be killed in record numbers. Last year, at least 2,412 Afghan civilians were killed according to UN figures, which most likely significantly underestimate the real toll. On January 28, a US gunner shot dead an imam outside a mosque in Kabul. Witnesses said that 36-year-old Mohammed Yonus was driving his car with his seven-year-old son and other children when he stopped before an American convoy. Fourteen bullets were reportedly fired, with four hitting the cleric. The killing occurred near the site of a suicide attack on an American convoy that injured eight soldiers earlier in the week.

A brief protest of local people erupted before elders called it off, fearing a clash with government security forces. “A lot of innocent people have been killed by the Americans,” Shabaz Khan, a 20-year-old student told the Washington Post. 

In another incident on January 29, two civilians were killed and another badly injured when US troops fired into their car at a checkpoint in the southeastern Ghazni Province.

On January 30, four Afghan soldiers were killed by “friendly fire” after a joint US-Afghan special forces unit opened fire on an Afghan Army checkpoint in Shinz village, west of Kabul, and then called in helicopter gunship support.

Amid the deepening crisis confronting the occupying forces, there is no indication that the plan outlined at the January 28 International Conference on Afghanistan held in London—to buy off Taliban militants with cash drawn from a designated $650 million slush fund—is likely to work. In a statement released last Saturday, the Taliban leadership denied that its representatives had earlier met with UN envoy Kai Eide and said such reports were “mere futile and baseless rumours”.


Patrick O’Connor - Feb 01,2010

Historian Zinn Said ‘Largest Lie’ was U.S. ‘War on Terrorism’

The “largest lie,” wrote hisorian Howard Zinn who died yesterday at age 87, is that “everything the United States does is to be pardoned because we are engaged in a ‘war on terrorism.’”

“This ignores the fact that war is itself terrorism, that the barging into people’s homes and taking away family members and subjecting them to torture, that is terrorism, that invading and bombing other countries does not give us more security but less security.”

In an article published previously in “The Long Term View” magazine of the Massachusetts School of Law,  Zinn said that in the Fallujah area of Iraq Knight Ridder reporters found there was no Ba’athist or Sunni conspiracy against the U.S., “only people ready to fight because their relatives had been hurt or killed, or they themselves had been humiliated by home searches and road stops.”

Zinn, popularly known as the people’s historian, pointed out that the U.S. may have liberated Iraq from the tyranny of Saddam Hussein but afterwards it became Iraq’s occupier. He noted this is the same fate that befell Cuba after the U.S. liberated it from Spain in 1898.  In both nations, the U.S. established military bases and U.S. corporations moved in to profit from the upheaval.

 
Zinn recalled the words of then Defense Secretary Donald Rumsfeld before the NATO ministers in Brussels in June, 2002, “the absence of evidence is not evidence of absence” of weapons of mass destruction. “That explains why this government, not knowing exactly where to find the criminals of September 11, will just go ahead and invade and bomb Afghanistan, killing thousands of people, driving hundreds of thousands from their homes, and still not know where the criminals are,” Zinn wrote.

“This explains why the government, not really knowing what weapons Saddam Hussein is hiding, will invade and bomb Iraq, to the horror of most of the world, killing thousands of civilians and soldiers and terrorizing the population,” he continued.

The historian pointed out that even if the U.S. experienced few battle casualties in its invasion of Iraq, casualties would mount afterwards in the occupying army from sickness and trauma, which took a high toll both in Viet Nam and after the Gulf War. In the 10 years after the Gulf War, 8,000 veterans died and 200,000 veterans filed complaints about illnesses incurred “from the weapons our government used in the war.”
 
Zinn predicted accurately that once the American public realized President Bush had lied to them about Iraq they would turn against the government. “When it loses its legitimacy in the eyes of its people, its days are numbered,” he said of the Bush administration.

Writing of his personal feelings, Zinn said, “I wake up in the morning, read the newspaper, and feel that we are an occupied country, that some alien group has taken over… I wake up thinking this country is in the grip of a President (George W. Bush) who was not elected, who has surrounded himself with thugs in suits who care nothing about human life abroad or here, who care nothing about freedom abroad or here, who care nothing about what happens to the earth, the water, the air. And I wonder what kind of world our children and grandchildren will inherit.”
 

Zinn called on his readers “to engage in whatever nonviolent actions appeal to us. There is no act too small, no act too bold. The history of social change is the history of millions of actions, small and large, coming together at critical points to create a power that governments cannot suppress. We find ourselves today at one of those critical points.”

The Massachusetts School of Law at Andover is a non-profit law school purposefully dedicated to the education of students from minority, immigrant, and low-income households who would otherwise not have the opportunity to obtain a legal education. Zinn’s article in The Long Term View first appeared in The Progressive magazine.

by Biznes team