NEW YORK (Reuters) - Merrill Lynch “secretly” accelerated bonus payments last year and gave at least $1 million to each of nearly 700 employees, even as the brokerage was amassing billions of dollars in losses, New York Attorney General Andrew Cuomo said in a letter to U.S. Rep. Barney Frank.
Merrill executives have drawn fire because they paid 2008 performance bonuses in December, earlier than usual and even as Merrill would reveal $15.3 billion of fourth-quarter losses by January 16.
The losses, the timing of the bonuses and the uproar over $1.2 million spent on decorating the office of Merrill Chief Executive John Thain led to the ouster of Thain by Bank of America Corp, which acquired Merrill last month.
Cuomo, who began questioning bonus plans in October after nine banks received $125 billion of U.S. Treasury capital injections, said in the February 10 letter obtained by Reuters that Merrill “secretly and prematurely” paid $3.6 billion of bonuses in December so that taxpayers would foot the bill.
“It appears that instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives,” Cuomo wrote.
The top four Merrill recipients received a combined $121 million; the next four received a combined $62 million; and the next six received a combined $66 million, according to Cuomo.
At Merrill, 696 employees each received at least $1 million, and the top 149 executives received a total of $858 million, Cuomo wrote.
A Bank of America spokesman said “a substantial” amount of Merrill’s bonuses were contractually guaranteed.
Meanwhile, the CEOs of eight big banks appeared before Frank’s House of Representatives Financial Services Committee on Wednesday to answer questions about how they have used Treasury funds.
An official in the New York Attorney General’s office said it was also seeking information from the initial TARP-recipient banks.
“We still want similar information from the other banks as well, and we are trying to do that and analyze the information,” the official in the attorney general’s office said.
Lawmakers and the public have complained that banks are hoarding the cash, and enriching their executives, rather than helping revive an economy sinker deeper into recession.
Cuomo has led the charge in challenging banks that awarded performance bonuses during a year when Bear Stearns and Lehman Brothers Holdings Inc collapsed, and the industry was crushed by massive trading and portfolio losses.
“For what performance? It’s called performance bonus. It’s an oxymoron,” Cuomo told reporters after a speech to a New York fiscal policy group on Wednesday. “It’s repugnant, it’s obnoxious and it’s wrong.”
He added, “We are in the middle of an investigation. If it is illegal, I’ll do everything I can to get the money back.”
Among the CEOs answering questions on how they spent taxpayer money were Kenneth Lewis of Bank of America, who told lawmakers he urged Merrill executives to reduce their bonuses substantially.
“Major changes will be made, but we cannot make them until we own the company,” Lewis said, referring to the fact that the bank only acquired Merrill on January 1.
Bank of America initially received $25 billion from the Treasury and later was forced to seek $20 billion more, plus $188 billion in asset guarantees, so that it could cover Merrill’s losses.
In the letter, Cuomo said Bank of America was complicit in Merrill’s efforts to award bonuses before year-end results were announced.
“This timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth-quarter earnings announcement and before the planned takeover of Merrill by Bank of America,” Cuomo wrote.
“These payments and their curious timing raise serious questions as to whether the Merrill Lynch and Bank of America boards of directors were derelict in their duties and violated their fiduciary obligations,” Cuomo said.
By December 8, he said, “Merrill and presumably Bank of America must have been aware that the fourth quarter and yearly earnings results were disastrous.”
Thain, after initially seeking a bonus for arranging the deal with Bank of America that saved his company from collapse, ultimately declined to receive a year-end payment.
Bank of America spokesman Scott Silvestri defended his bank’s role, stressing that Merrill was an independent company until January 1
“Merrill management proposed and the compensation committee of their board approved the incentives,” Silvestri said. “Bank of America did urge the bonuses be reduced, including those at the high end. Although we had a right of consultation, it was their ultimate decision to make.”
Bank of America’s top eight executives received no 2008 bonuses, while the next level of management saw their bonuses reduced by 80 percent.
Cuomo’s office confirmed the existence of the letter but declined further comment.
Additional reporting by Grant McCool; Editing by John Wallace and Jeffrey Benkoe