NEW YORK (Reuters) - Morgan Stanley (MS.N) should be barred from paying as much as $3 billion to entice brokers to stay when the company and Citigroup Inc (C.N) merge their brokerage operations, U.S. Senator Robert Menendez said.
In a Tuesday letter to U.S. Treasury Secretary Timothy Geithner, Menendez, a New Jersey Democrat, urged the government to use “every legal means available” to stop the payouts as long as Morgan Stanley receives support from taxpayers.
“These payouts constitute misuse of taxpayer money,” Menendez wrote. “Some on Wall Street don’t understand that they, more than anyone, cannot be permitted to carry on with business as usual. These times demand shared sacrifice.”
The senator said the payouts, like bonuses paid at troubled insurer American International Group Inc (AIG.N), are “essentially the same form of extra compensation” and are “not fully necessary to retain executives in this tough financial market.”
Morgan Stanley has taken $10 billion and Citigroup $45 billion from the government’s Troubled Asset Relief Program (TARP).
Christy Pollak, a Morgan Stanley spokeswoman, said each award is “not a bonus,” but is a nine-year “forgivable loan” that must be paid back if a broker leaves sooner.
“The program is necessary because our financial advisers are being poached by competitors,” Pollak said. The cost is covered by operating revenue of the joint venture and not government TARP money.”
About 6,500 of the venture’s 20,000 brokers are expected to be eligible for awards, which would be made in 2010 and 2012.
Retention awards are paid to keep brokers from defecting after a company is bought. Financial companies getting taxpayer money are facing heavy pressure from Congress and regulators to limit pay.
“If you want this venture to succeed, then this type of award is necessary,” said Danny Sarch, founder of recruiting firm Leitner Sarch Consultants Ltd in White Plains, New York. “If the awards are cut back, they will have dramatically more attrition than they would otherwise. The rest of the industry would have a field day in recruiting.”
Under the payout plan, brokers who generate at least $1.75 million in revenue a year may get awards equal to 105 percent of their annual production, a person familiar with the plan said last month. The person was not authorized to publicly discuss details of the plan.
Wells Fargo & Co (WFC.N), which bought Wachovia Corp at the end of 2008, said last month it will not issue retention awards to about 14,600 brokers from Wachovia’s brokerage arm, Wachovia Securities.
Morgan Stanley is paying Citigroup $2.7 billion for an initial 51 percent stake in their venture, and may take full control after five years. A closing is expected this summer.
A Treasury Department spokesman was not immediately available for comment.
Reporting by Jonathan Stempel, editing by Gerald E. McCormick and Jeffrey Benkoe