Merrill Lynch & Co plans to cut year-end bonuses in half after more than US$20 billion in losses that forced the US securities firm to sell itself to Bank of America Corp, two people with knowledge of the situation said.
The average bonus reduction will be about 50 percent at the New York-based company, and some traders and investment bankers will face steeper cuts, said the people, who declined to be identified because the plans aren’t public.
While employees won’t find out their bonus amounts until later this month, division managers are being told now how much they’ll get to distribute.
Merrill’s revenue through September fell 96 percent from a year earlier, forcing chief executive officer John Thain to slash compensation — the firm’s biggest expense. Congressmen and regulators scrutinizing Wall Street pay have sought to ensure that economic-rescue funds from the US government are used to stimulate lending and not to enrich executives.
The drop in bonuses at Merrill would be less severe than the 70 percent average cut for all Wall Street firms that compensation consultant Johnson Associates predicted last month. Bonuses make up the bulk of a year’s pay for most traders and investment bankers, and they usually fall when markets sour.
Merrill spokeswoman Selena Morris declined to comment.
Hit with mortgage-bond writedowns and plunging investment-banking fees, Merrill may report a loss this year of US$13.3 billion, based on the average estimate of nine analysts surveyed by Bloomberg. That would be almost twice as wide as the US$7.8 billion loss for last year, then a record for the 94-year-old firm.
Meanwhile, Goldman Sachs Group Inc’s exposure to the volatile stock markets is prompting analysts to predict a steep loss for the company’s fiscal fourth quarter.
On Tuesday, UBS analysts predicted Goldman would lose US$5.50 per share for the quarter ended Sunday, compared with a previous estimate for a loss of US$0.40 per share.
The UBS adjustment comes a day after Credit Suisse analyst Susan Roth Katzke predicted the bank would lose US$4 per share. She had previously estimated Goldman would earn US$2.47 per share. It also comes as the Wall Street Journal, citing unnamed industry insiders, reported on Tuesday that Goldman could be in line to post a US$2 billion quarterly loss, which would be equivalent to about US$5 per share.
Analysts polled by Thomson Reuters, on average, forecast Goldman would lose US$1.06 per share for the quarter. Just a month ago, analysts were projecting Goldman would earn US$1.62 per share.
The loss would be Goldman’s first quarterly loss since it went public in 1999.
A spokesman for Goldman declined to comment, saying that Goldman does not provide earnings guidance and does not comment on outside forecasts.