Finishing off the 2008 job performance season in banking, the New York Times ran an article that discussed the end of year call that the Wells Fargo head of the GMIB (Global Markets and Investment Bank) had with Wachovia Investment Bank employees. The authors very accurately quoted Tim Sloan and also mentioned the comments of an unnamed “third year vice president” who happens to be the author of this blog. It would seem that the NYT staff listened to the actual call (there was a replay enabled for over a week), and it is unfortunate that they did not give more of the details. The article can be found here, and I have excerpted the relevant section below. It is maddening to have joined a firm (Wachovia) that had some very broken components to it (e.g., the acquisition of Golden West at the height of mortgage bubble) and as a result be in such a weakened position that it was pushed into deals by the FDIC. It is also very unfortunate that Wells Fargo has not taken a view that the Wachovia investment bank employees (or at least some portion of them) are a valuable resource. I was correctly quoted as saying that the slashing of the bonuses will create a situation of financial extremis for many employees. To put this in context, a bonus is anywhere from 70%-90% of an i-bank employee’s pay, so to have no bonus is an effective 70%-90% cut in pay. Some who have been working long enough to have built up a significant cushion may be able to sustain that drop, but many who are earlier in careers and may have young families have a very difficult time in making ends meet with that sort of unexpected drop in income. It would seem that the Wells Fargo management team is either a) ruthless, b) clueless, or c) plans to buy another investment bank this year and will keep those employees happier (clearly, some combination of the three is possible). Many employees have performed at levels that would have their compensation reflect that of employees at other banks, i.e. down 40%-50%, and I have no doubt that all of those same top performers will be plotting their escape from Wells Fargo when even the slighest hint of liquidity arises. It may take some time, but alternatives will become available when the economy recovers. Maybe Wells Fargo’s behavior will come back to haunt them in the end….I am not sure how an investment bank delivers shareholder value without attracting and retaining the best people.
Mr. Pandit said that Citigroup would continue to pay the bulk of its employees well as long as they performed.
“Meritocracy requires differentiation in pay,” Mr. Pandit said.
That is in stark contrast to the 2008 pay plan at Wachovia, where bonuses were drastically slashed for the rank and file. Many of Wachovia’s senior executives, though, could still reap riches from the bank’s shotgun merger with Wells Fargo.
In a conference call on Dec. 19, Tim Sloan, a Wells Fargo executive who will head the global markets and investment banking unit, told a group of Wachovia bankers that they would not receive big bonuses. Instead, their allocated bonus money will be returned to shareholders.
He also said there would be no retention packages, according to a Wachovia employee who listened to the call. A Wells Fargo spokeswoman declined to comment.
“I know that’s very painful to hear, but that’s the reality,” Mr. Sloan told the employees, as recounted by the participant. “It just would have been irresponsible to the company’s shareholders to do anything else.”
But some employees complained that the rules were being changed late in the game. One employee who identified himself as a third-year vice president said the bank’s decision was putting its employees in “financial extremis” and, in some cases, at risk of not making their mortgage payments.
Wachovia’s senior executives — including Robert K. Steel, who served as chief executive for just a few months — will not take home a discretionary bonus for 2008. Of course, that is not to say that all of them will wind up empty-handed.
According to corporate filings, 10 of Wachovia’s senior executives are eligible to receive up to $98.2 million in severance payouts upon the completion of the merger with Wells Fargo.
Happy New Year to all and best wishes for a peaceful and prosperous 2009!