Mortgage mess squeezes Wall Street bonuses

By Joseph A. Giannone - Analysis

NEW YORK (Reuters) - Wall Street bonuses are the latest casualty of the subprime mortgage crunch.

What began as a blowout year for global investment banks ended on a disastrous note, marred by profit warnings, losses and layoffs at almost every investment bank not named Goldman Sachs Group.

Banks hit by losses on mortgages, related securities and leverage loans are cutting back annual performance payouts -- in some cases by more than half -- and paying a bigger portion through shares instead of cash. Even top performers at some firms are getting pinched.

"It's going to be brutal. The bonus pool is shrinking," said John Kim, global head of capital markets sector at Korn/Ferry International.

Starting last week, Wall Street's banks began telling executives what they earned for all their long hours. Overall bonuses were down from last year, headhunters said, though individual payouts are all over the map.

The employees who sell, trade and package debt securities -- and generated the bulk of losses for Citigroup (C.N), Merrill Lynch MER.N, UBS (UBSN.VX) and Morgan Stanley (MS.N) this year -- saw their payments slashed. Likewise the bankers who arranged financing for leveraged buyouts, creating commitments that fuelled additional losses.

Bonuses for a handful of the most successful fixed income traders this year were flat to down 5 percent. Other top performers were down 10 to 20 percent, according to recruiters getting early feedback from clients.

BLOODBATH

These are the lucky ones, considering that the weakest performers saw bonuses slashed by a third. Some individuals are reporting 75 to 80 percent cuts.

"It's a bloodbath on the credit side," Kim said.

Cuts were particularly deep at Merrill Lynch, which is expected to report massive credit and mortgage losses for the quarter ending December 31. Even top credit and mortgage staffers will see payments cut by 50 percent, with others seeing their bonuses slashed 75 percent.

The pain also extends to the top of the ladder. Morgan Stanley CEO John Mack this week said he will get no bonus this year, after $9.4 billion in losses led to a quarterly loss. Bear Stearns BSC.N, which posted a loss Thursday, said CEO Jimmy Cayne and other top executives will get no bonuses.

The exception was Goldman, which reported record profit and revenue and boosted compensation by 23 percent to $20.2 billion this year, the most paid out by any bank ever. On average, Goldman's 30,500 employees each received $661,490, double the amount paid to counterparts at Morgan Stanley and Lehman.

A few stars will get much more. Goldman CEO Lloyd Blankfein is expected to take home as much as $70 million, while the proprietary traders who generated billions of dollars in gains betting against subprime will get $15 million each.

Elsewhere on Wall Street, not everyone will go home disappointed. Several businesses across Wall Street had banner years, such as mergers and acquisitions. Top-tier bankers in hot sectors, equities traders and stock underwriters saw bonuses rise 5 to 10 percent, headhunters said.