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Bonus document jan 2010

  1. 1. COMPENSATION AND BONUS TALK 2009 - 2010 NICK POOLE, EXECUTIVE DIRECTOR SCOTT TAN, EXECUTIVE DIRECTOR NICK.POOLE@TIGLON-PARTNERS.COM SCOTT.TAN@TIGLON-PARTNERS.COM PREPARED BY TIGLON PARTNERS INTELLIGENCE & RESEARCH (TPIR) STATEMENT OF CONFIDENTIALITY THE INFORMATION CONTAINED WITHIN THIS ANALYSIS IS INTENDED FOR THE RECIPIENTS USE ONLY. UNAUTHORIZED DUPLICATION AND DISTRIBUTION IS PROHIBITED. This report is the result of research undertaken by Tiglon Partners Asia. The information it contains is highly confidential and shared with us on the strict understanding of controlled disclosure. Failure to observe this undertaking could result in legal proceedings by persons named in this report.. The information given has been compiled primarily from verbal sources. Whilst compiled in good faith, we do not accept responsibility for any errors or omission in the presentation or for any loss or damage arising out of any reliance on the information. By accepting receipt of the report you undertake to indemnify Tiglon Partners against any losees, expenses and liabilities it may suffer directly or indirectly as a result of loss, unauthorised use or publication of any part of the document.
  2. 2. Table of Contents Introduction Page 3 Bonus Chart – Announced and Paid Page 4 Barclays Page 5 BNP Paribas Page 8 Citigroup Page 10 Credit Suisse Page 14 Deutsche Page 18 Goldman Sachs Page 21 HSBC Page 25 JP Morgan Page 27 BoA / Merrill Lynch Page 31 Morgan Stanley Page 33 Royal Bank of Scotland Page 38 UBS Page 40 Other Banks Page 42 Bonus Talks, 18 January 2010 Page 2 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  3. 3. INTRODUCTION The keyword for this year’s bonus season is – REFORM. Tiglon Partners broadly projects a growing divergence in incentive compensation across the financial services industry. Incentive compensation for major investment & commercial banking firms is projected to significantly increase year- over-year. While generally the industry has stabilized, the pace of economic recovery, industry activity, repayment of government funds, and evolving legislation are key drivers for this year’s bonus outlook. Incentive levels projected to be mixed and increasingly confusing for 2009  Houses not influenced by government funds have greater ability to compensate The hiring trend is picking up, from frozen earlier this year to a plus in early to mid 2010  Retention challenges for passive firms or those with less flexibility  Increased focus on client retention surrounding non-compete clauses is an early indicator Stability on buy-side returning, specifically with the real money managers and hedgies continued focus on damage control – middle and back office hires  With continued rebound, market averages for 2009 will trail 2008 levels  Reduced assets under management will prolong pressure on incentives  Recent rebound creates misleading compensation expectations, perception management is crucial Regulatory and big government pressure continues  Boards and management faces pressures to comply with evolving regulatory guidelines requires plan flexibility  Overhaul of pay paradigm focusing on risk and alignment of payouts and time horizons (higher base salaries with offsetting reduction to cash incentives, prevalence of claw back mechanisms) Generally most houses this year will cap cash compensation. Top executive cash payments will probably be capped or dropped altogether as stock options increasingly become the main component of year-end packages for top executives, with substantial deferral and claw backs in place. In conclusion, market signs of strong shift to more of a ‘Private Equity’, multi-year payout model or a deferred performance-based structure is most likely for 2009/2010. Although most banks have yet to announce either the percentage of 2009 bonuses to be deferred, or the length of their deferrals, some clarity is emerging. We at TPIR have consolidated what’s currently known (and what’s speculated/rumoured) in each house, as well as historical compensation details reflecting structures before, during and after the crisis. Bonus Talks, 18 January 2010 Page 3 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  4. 4. BONUS ANNOUNCEMENT & PAYMENT SCHEDULE (2007, 2008, 2009) Jun May Apr Mar RBS Feb DEUTSCHE BNP PARIBAS HSBC BOA / MERRILL LYNCH BARCLAYS Jan CITIGROUP / CITIBANK CREDIT SUISSE JP MORGAN UBS Dec MORGAN STANLEY GOLDMAN SACHS Nov Legend 2007-2008 2008-2009 2009-2010 Announcement Payout Bonus Talks, 18 January 2010 Page 4 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  5. 5. BARCLAYS 2009-2010 BASE ADJUSTMENT  Possibly. Reviewing the amount it pays in basic salaries upwards. BONUS TALKS  Has not stated anything officially, but may defer 75-80% of this year’s payouts.  Deferral period is rumoured to be up to 5 years.  Claw back unclear.  On guarantees the bank says it’s ‘complying with G20 guidelines’ on guarantees, implying that it’s not paying guarantees lasting more than 1 year. IN THE NEWS Barclays Capital has denied reports that its investment bankers stand to receive raises of up to 150%. Sources said up to 23,000 Barclays bankers reportedly were informed of the salary increases through a letter from the bank, as it became known that Bob Diamond, the banks board director and a critic of the recently announced U. K. bonus taxes, had sold GBP5 million in shares, about one-fifth of his holdings. According to sources, the raises were backdated to June 2009, and given in advance of the new tax. Unlike other banks, such as Royal Bank of Scotland and Lloyds, BarCap did not receive government bailout money, but it is said to have benefited from the increased liquidity after other financial institutions received aid from the Bank of England. (Source: Derivatives Week) – January 2010 Is expected to announce that it will raise the salaries of some 22,000 staffers at Barclays Capital by up to 150% as a way to circumvent the U.K. government’s clamp down on bonuses. The pay hikes reportedly would be backdated to June, in effect awarding bonuses that may not be permitted to participants in the government’s Asset Protection Scheme. The extra compensation, however, would likely be awarded in stock and deferred for up to three years, according to new guidelines. (Source: Derivatives Week) – December 2009 Bonus Talks, 18 January 2010 Page 5 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  6. 6. Barclays – continued Barclays will defer up to 60 per cent of its bonuses this year and wants more remuneration to be paid in fixed income, Barclays president Bob Diamond has said, according to the Sunday Telegraph newspaper. "Deferrals going from the 24 per cent level to the 40-60 per cent level is broadly what's there (in G20 and Financial Security Board principles) and we support those principles. You will have higher deferrals," Mr Diamond was reported saying. Mr Diamond added that many positions should have "a higher portion of fixed (income) and a lower portion of variable." (Source: Wealth Briefing) – December 2009 Imposing a tax on bankers' bonuses would not be in line with the principles for compensation set out by leading G20 countries last year, the head of Barclays' investment bank said on Tuesday. Asked whether Britain should impose a tax to deter banks paying high compensation, Barclays President Bob Diamond said: "We don't feel that that is supported by the principles that were adopted." Britain is mulling a windfall tax on bonuses in the financial sector as part of its pre-budget report on Wednesday, government sources have told Reuters, sparking concern from banks that London could lose its competitive edge. Diamond, who is also CEO of the Barclays Capital investment bank arm, said he was aiming for return on equity of 15 percent to 20 percent. "For Barclays and Barclays Capital ... we still get back to 15-20 percent as the appropriate levels to be looking at in normalised environments," he said at a finance conference in southern England on Tuesday. He said policymakers and regulators needed to ensure reform is coordinated across the major economies. "It's extremely important today that around the large economies and financial centres that we create a level playing field around capital, accounting and compensation," he said. (Source: Reuters) – December 2009 Investment bankers in Barclays are set to receive bonus and salary packages worth an average of 250,000 pound per head for the last six months' work, media report says. "Barclays' high-rolling investment bankers are set for bonus and salary packages worth an average of 250,000 pound a head for six months' work," the Sunday Times said. After a robust performance by Barclays Capital, the investment banking arm of the British lender, Barclays is setting aside a remuneration pot of up to 5 billion pound for the first half of the year, the newspaper added. The investment- banking arm is expected to help Barclays report a profit of about 3 billion pound, despite large provisions for bad debts. This week all the big British banks will report half-year figures and most are back in the black including a possible 5 billion pound profit at Lloyds and the Royal Bank of Scotland (RBS) is likely to surprise investors by saying it has only broken even. HSBC is likely to post underlying profits of 1 to 4 billion pound. – August 2009 Was attempting to recruit five JP Morgan investment bankers with a bonus package worth a total of 30 million pounds (S$71.5 million), The Sunday Telegraph reported without citing sources. It said the deal is one of the most generous since the financial crisis prompted the British government to provide billions of pounds of taxpayer support to prop up the banking system and follows widespread criticism of City bonuses by politicians. The newspaper said Barclays' investment banking arm, Barclays Capital, is close to poaching one of the City's star commodity traders, Todd Edgar, and his team of four traders at JP Morgan. A spokesman for Barclays declined to comment. Although Barclays has not received any direct state money, politicians have argued it has benefited from taxpayer support for the financial system as a whole. British finance minister Alistair Darling told the Sunday Times newspaper the government is prepared to tighten the laws on bankers' pay and bonuses if companies continue to reward excessive risk-taking. (Source: Reuters) – August 2009 Bonus Talks, 18 January 2010 Page 6 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  7. 7. Barclays - continued HISTORICAL 2008 – 2009  Overall reduction in bonus pool for equity – 60%, fixed income – 50-70%.  Anyone above Manager level was paid a deferral of 50%. 50% of cash paid first, subsequent 25% paid in April 2010, and remaining 25% April 2011.  Global corporate sales bonuses were down approximately 55% from 2007.  No claw back. Bonus Talks, 18 January 2010 Page 7 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  8. 8. BNP PARIBAS 2009-2010 BASE ADJUSTMENT  No adjustment BONUS TALKS  Across treasury, FX, commodities and fixed income research. A full cash component of 2 to 6 months or 4 to 6 months is anticipated. The bank has a benevolent stock programme offering a 20% discount to staff for internal purchasing available in June. The maximum purchase is capped at 35,000 or 40,000 Euro’s.  Under new French bonus rules at least 50% of all bonuses must be deferred; that figure will rise to 60% for higher amounts. In August, BNP agreed to halve its bonus pool to €500m for the first half; this applies only to the cash component of its payouts.  It has been suggested that deferrals will occur on a sliding scale: below €150K, everything will be paid in cash; between €150-350K, 25% will be deferred; between €350-500K 35% will be deferred; and above €500k 50% will be deferred.  Deferral period is at least 3 years.  Guarantees restricted to 1 year. Bonus Talks, 18 January 2010 Page 8 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  9. 9. BNP Paribas - continued IN THE NEWS BNP Paribas SA’s 1 billion-euro ($1.4 billion) bonus pool is sparking criticism from French politicians even though it’s dwarfed by payouts at the biggest U.S. investment banks. New York-based Goldman Sachs Group Inc. set aside $11.4 billion for compensation and benefits in the first half, or 49 percent of revenue, while Morgan Stanley will pay 71 percent of revenue, company reports show. France’s largest bank spent 46 percent of investment-banking revenue on all the unit’s costs, from salaries to computers and phones. French President Nicolas Sarkozy called today for strict supervision of bankers’ pay to ensure it complies with rules laid down by the Group of 20 countries, and plans to meet with banking officials on Aug. 25. For French banks, the risk is that higher-paying competitors will lure away talent, said Shaun Springer, the head of London-based Square Mile Services Ltd., a firm that advises banks on remuneration and salary issues. “The political pressure on French banks to rein in pay is much greater than in the U.K. and in the U.S.,” Springer said. “This is a problem that’s leading to a far wider pay gap between the world’s top payers, including Goldman, and the rest of the field.” Checking BNP Plan The French state pumped 10.5 billion euros into the country’s six largest consumer banks, including BNP Paribas and Societe Generale SA, in December by purchasing subordinated debt securities. In January, the government made the same amount available in a second round of funding. In exchange, banks agreed to boost lending. Bank of France Governor Christian Noyer, who met with top bankers today, said the BNP bonus plan “does seem to conform to the G-20 criteria, but we will check.” Finance Minister Christine Lagarde said on Europe 1 radio that international rules are needed to ensure bonuses don’t encourage excessive risk-taking, and to prevent traders from avoiding limits by moving to countries with weaker regulations. At BNP Paribas, which didn’t disclose total compensation costs, the 1 billion euros set aside for variable pay at the investment bank amounted to 14 percent of the unit’s revenue. (Source: Bloomberg) – August 2009 HISTORICAL 2008 – 2009  Overall reduction in bonus pool for equity – 50%, equity derivatives – 70-90% and fixed income – 50%.  No cash bonus.  25% of equity vests each year from 2009-2012, and figures also depends on ROE of the firm. Vesting is delayed on ROE underperformance.  Payout on equity was based on ROE of the division, for example: people in Fixed Income was paid out of the global performance of the division, this applies to equity division as well. Bonus Talks, 18 January 2010 Page 9 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  10. 10. CITIGROUP / CITIBANK 2009-2010 BASE ADJUSTMENT  Significant upside. Some Managing Directors said to be on £300k. However, Citigroup is affected by Kenneth Feinberg’s compensation diktat, which restricts the salaries of 25 specified ‘senior executives’ to £300k and says up to 90% of base pay must be deferred. Existent TARP restrictions say people in this cohort are also unable to receive more than a third of their total payment in the form of a bonus. BONUS TALKS  Percentage deferred not clear, but period thought to be over 4 years.  Claw backs in place.  Guarantees a yes. Biggish guarantees rumoured for Rachel Lord and Stefanos Bitzakidis. Citi is offering key employees in rates and mortgages verbal guarantees, or “floors”, of $1m to stay. IN THE NEWS Citigroup staffers will receive a shot of makeup pay early next month as part of the bank’s plan to award higher salaries to employees used to getting sizeable bonuses but unlikely to get them this year. The plan was announced in June, retroactive to January 1, but not all the back pay was awarded at that time. A number of senior managing directors had their base pay increased from USD250,000 to USD400,000. The higher salaries were implemented in August and covered back pay from the time of the announcement until that point, but pay for the first six months of 2009 was not included. That is what will be paid out shortly. In addition, U.S. pay czar Kenneth Feinberg will soon announce the pay structures, though not the dollar figures, he has approved for the remaining 75 of Citi's top earners globally. The salaries of the firm’s 25 highest-paid executives were approved in October. Other banks, including Barclays Capital and UBS, are understood to have bumped up basic salaries in lieu of higher bonuses, but it is unclear whether others have been backdating pay. Goldman Sachs set aside USD16.7 billion for staff compensation and benefits for the first nine months of 2009 but has not given any details for 2010. (Source: Derivatives Week) – December 2009 Bonus Talks, 18 January 2010 Page 10 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  11. 11. Citigroup - continued Cuts in 2009 pay and bonuses for Citigroup's top 100 executives ordered by the Obama administration's pay czar will remain in place despite the bank's deal to exit the government's bailout program, a Treasury official said on Monday. Citi agreed as part of the payback of $20 billion in trust preferred securities, the official said, that for services rendered in 2009, rulings by Treasury Special Master Kenneth Feinberg will remain in place. Citi would not be subject to Feinberg's 2010 pay rulings if it completes the transactions. "Thus, they cannot pay a bonus amount in 2010 for 2009 services to make up for amounts not paid due to Feinberg in 2009," the official said, on condition of anonymity. Feinberg in October ordered cash compensation cut 96 percent for Citigroup's top 25 earners and total direct compensation cut by 70 percent. Last week, he ordered that remaining 2009 cash salaries for the next 75 executives at Citi and other firms be capped at an annual rate of $500,000, while bonuses for the year would come from a fixed pool. More than half of incentive compensation would need to be made in long-term stock awards, untouchable for three years. (Source: Reuters) – December 2009 Citigroup is increasing the base salaries of many employees - reportedly by as much as 50 percent - as it restructures their compensation amid government restrictions on bonuses. The Obama administration reacted by pledging to aggressively implement a new law governing compensation at companies that have received taxpayer-funded bailouts. Citi, which is examining “ways to ensure its employee compensation practices are competitive,’’ has received $45 billion. Administration officials refused to say whether Citigroup informed the government in advance of its decision. Higher salaries at Citigroup are not the equivalent of annual raises, because bonuses are being lowered, said a person familiar with the matter. The person said the changes would not affect the amount of an employee’s compensation. By shifting the mix of compensation, the change could allow Citi to pay most employees as much as they received in 2008, while adhering to bonus caps. The person said the employees include traders, who tend to be compensated more heavily with bonuses, and middle- and lower-level managers, whose compensation is more heavily weighted toward salaries. Only those who get base salary and bonus could see an adjustment. Before the financial crisis, top traders and investment bankers typically earned $125,000 to $250,000 in base salary and $1 million to $5 million in bonus. The New York Times reported that some Citigroup salaries will rise as much as 50 percent. (Source: Associated Press) – June 2009 AIG isn't the only bailed-out financial firm paying big bucks to managers who helped steer their company to near collapse. Citigroup has pledged millions of dollars in bonuses to senior executives for the next few years, despite lawmakers efforts to eliminate such payments. It's not clear whether the bonuses, which Citigroup says are for 2008 but won't start paying out until 2010, will be allowed. Under compensation rules passed by Congress in mid-February, cash bonuses are barred for top executives at bailed-out banks. But Citi finalized its bonus program shortly before the new rules were introduced. That might make the payments permissible, though they could be made almost worthless by new tax rules just passed by the House of Representatives and headed for consideration in the Senate. Even so, Citigroup's move in January to set in place bonus payments for years to come raises questions about whether it was trying to evade compensation rules it knew were coming. "If an executive legitimately earns a bonus, then paying it out over a number of years makes a lot of sense,' says Paul Hodgson, a senior research associate at the Corporate Library, which examines issues of corporate governance. "But I find it hard to believe that any top executive at a bailed-out bank would have had the performance in 2008 to generate a multimillion-dollar bonus." Under Citi's proposed compensation plan, three of the company's top five executives would be paid a total of nearly $12.5 million in cash bonuses over the next five years. One of the executives, James Forese, is a co-head of Citi's Institutional Client Group, which lost $20 billion in 2008. Forese is rewarded $5 million under the plan. At least 15 other Citi executives are in line for multimillion-dollar payouts. Citi declined to say how much in total it has promised under the plan. According to a proxy statement Citi filed with the Securities and Exchange Commission, the company finalized its bonus plan on Jan. 14. Twelve days later an amendment barring such payments was inserted by the House of Representatives into the $787 billion fiscal stimulus bill, which went into effect on Feb. 17. A Citigroup spokesman denied that the company did anything wrong, noting the pay packages in question were set a month before the Bonus Talks, 18 January 2010 Page 11 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  12. 12. Citigroup – continued bonus ban became law. "Overall executive compensation [at Citigroup] substantially decreased from 2007 to 2008," the spokesman said. "CEO Vikram Pandit and CFO Gary Crittenden declined any bonus for last year as well. As always, we will comply with the new restrictions on compensation ... in addition to continued adherence to the substantial changes we already have made to our compensation structure.' The revelations about Citi's bonus plan come at a time when anger over executive pay, particularly in the troubled financial sector, is boiling over. On Thursday, the House overwhelmingly passed a bill that would impose a 90% income tax on all compensation over $250,000 earned by employees at banks that have received more than $5 billion in bailout funds. The Senate is working on its own bill to raise taxes on highly compensated bankers. President Barack Obama indicated he would sign legislation that curtails bonuses. (Source: Time) – March 2009 HISTORICAL 2008 – 2009  Equity - Depending on seniority and amount, bonuses were paid in cash and stock, overall reduction in bonus pool was down 30-60%  Fixed Income - Overall reduction in bonus pool was down 20-50%. Break down in compensation for different positions within this division:  Managing Directors : 50% cash, 50% stock  Directors : 70% cash, 30% stock  VPs : 80% cash, 20% stock  Associate : 90% cash, 10% stock  Analyst : All cash  Fixed income institutional sales bonuses were down 25-40%, and trading bonuses down 25-50%.  Corporate sales bonuses were down 50-70%.  No claw back. Bonus Talks, 18 January 2010 Page 12 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  13. 13. Citigroup - continued 2007 - 2008  Bonuses at Citi were generally flat to down YoY. Cash Equity Sales teams were paid flat YoY despite strong revenues in 2007.  Equity Derivatives, including Sales, Trading and Structuring were among the best paid in the market and were 40% up on last year. P&L was three times the level of 2006. Credit was paid very poorly in Asia, and roughly 20% to 40% down.  FX/Rates Sales were up 20% on the year, while Trading was flat to down. Commodities bonuses in Asia were flat to slightly down but seemingly better than expected.  All areas were paid higher in Asia than US and Europe.  At least 25% stock was awarded in the 2007 bonus round, with this percentage increasing by seniority. This was awarded at price of $19.00.  Equity components will vest in 2-3 years. Bonus Talks, 18 January 2010 Page 13 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  14. 14. CREDIT SUISSE 2009-2010 BASE ADJUSTMENT  30% upside adjustment across Managing Director and Director level, official announcement will be made 1st Jan 2010. BONUS TALKS  Bonuses below CHF125k (US$100k) will be paid entirely in unrestricted cash. Above this, a variable proportion (determined by a secret table) will be deferred. Of the deferred element, 50% will be paid in Scaled Incentive Share Units (SISU) linked to the bank’s share price and RoE; the other 50% will be paid in Adjustable Performance Plan Awards (APPA), based on the bank’s RoE.  SISUs are deferred over 4 years. APPAs are deferred over 3 years.  Claw back in place, APPAs are adjusted downwards if an employee’s business area is loss making.  No news on guarantees. IN THE NEWS Credit Suisse releases guidelines governing bonus payouts Credit Suisse announces new rules regarding compensation, increasing the fixed component for MDs and directors and linking variable compensation to return-on-equity. Credit Suisse on Tuesday announced revised compensation practices effective January 1, 2010, that will also be applicable to 2009 bonuses. Credit Suisse is changing the mix of bonus and salary payable to managing directors and directors, such that fixed salaries will be a larger component of the overall payout for employees at these senior levels. Vice-presidents and below will not be affected. Bonuses up to $100,000 will continue to be paid in cash. Higher amounts will be subject to deferral. For deferred compensation Credit Suisse is introducing two new instruments: scaled incentive share units (sisu) and adjustable performance plan awards (appa). Deferred compensation will be paid half in sisu and half in appa. Up to 50% of bonuses for MDs and directors will be payable in these two forms. Sisu are similar to the incentive share units that Credit Suisse has been using for the past three years. Sisu are linked to a base share amount on a four-year pro-rata basis, which vests annually. The difference is that the holder is also entitled to additional shares, which vest after four years based on Credit Suisse's average share price over a four-year period as well as the return on equity (ROE) the bank has achieved. If Credit Suisse's average ROE over the four-year period is higher than a pre-set target, the number of additional shares will be adjusted upwards, and if it is below the target, the Bonus Talks, 18 January 2010 Page 14 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  15. 15. Credit Suisse - continued number of additional shares will decrease. The appa has a notional cash value and vests pro-rata over three years. This is also linked to ROE -- it has a notional value that adjusts upward annually using Credit Suisse's ROE for that year as a multiplier. If the employee works in an area of the bank that has made losses, the appa will be adjusted downwards. For divisions that earn revenues, payouts will be linked to financial contribution. For shared services and support functions, payouts will be based on the financial performance of Credit Suisse as a whole. This Swiss bank is also introducing minimum share ownership requirements for members of management committees and for the executive board, presumably to ensure that the net worth of senior decision-makers is linked to the performance of the firm. October 2009 About 300 staff from Swiss banking giant Credit Suisse stand to receive about $2.54 billion (US$1.8 billion dollars) in stock under a bonus scheme introduced about five years ago, a report said Thursday. The bankers and executives are set to cash in on their rewards under the performance- based scheme introduced in 2005 as the bank struggled to retain staff, the Financial Times said. The "performance incentive plan" includes some of the elements that critics of bankers' bonuses have been demanding in the wake of the global financial crisis, the FT said. The scheme saved Credit Suisse much needed funds at the time, but proved unpopular among staff because it forced them to wait five years and remain at the bank before cashing in on their rewards. The rewards are due in March and because the bank has hit performance and share price targets, staff could receive about 2.76 Credit Suisse shares for each unit they were awarded, according to the newspaper. The total amount is worth some 1.9 billion francs (US$1.8 billion, 1.2 billion euros). "The PIP programme was ahead of its time and is very consistent with the focus on long-term risk- adjusted compensation being discussed today," said Paul Calello, head of Credit Suisse's global investment bank. Overhauling bonuses paid to banking executives is set to be on the agenda at the G20 summit starting Thursday in Pittsburgh and hosted by US President Barack Obama. EU leaders have agreed to pursue changes at the summit that include ending guaranteed bonuses and for rewards to be tied to "long-term performance". – September 2009 In an attempt to avoid public outrage over bonuses, Credit Suisse bankers received their 2008 bonuses from a pool of toxic bonds and corporate loans, rather than in cash and stock. Many feared that the toxic assets would be a total loss, but instead the fund gained 17 percent since January of this year, according to a report in The Wall Street Journal this morning. The pool was created for senior employees to help move some of these toxic assets off the bank's balance sheet. The bank's employees were told they could wait out the bear market until these loans recovered value or were written off. The debt in this pool includes a Japanese shopping center, a mining company and a U.S.supermarket chain. Employees whose bonuses were paid with the fund can't cash out the shares for at least five years. When the bonus pool was announced bankers thought the plan was unfair to employees who didn't contribute to the bank's losses. The bankers wanted their usual combination of cash and stock. But the bank wanted to avoid outrage in Washington and European capitals, so it didn't back down on the decision to pay with toxic assets. So far no other bank has followed Credit Suisse's lead of paying bankers with toxic assets, but they are watching the results closely. It's a creative way to get toxic assets off the books and let the employees who were involved in their acquisition take some of the risks. Credit Suisse does not expect to pay bonuses the same way in 2009. The bank says it has aggressively shed a lot of its beaten-down assets. It's had two strong quarters and its stock is up 75 percent since January. U.S. banks should consider similar bonus pools to get toxic assets off their balance sheets and let the bankers who took this risk for the bank live with the consequences. In the long term, all would benefit from a healthier balance sheet. – July 2009 Bonus Talks, 18 January 2010 Page 15 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  16. 16. Credit Suisse - continued HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 50-60%.  Fixed Income - Overall reduction in bonus pool was down 50-90%.  Specifically, fixed income overall was severely down, with Credit down as much as 70%.  There were cash and non-cash components based off a matrix formula, dependent on the absolute total compensation – the split was around 50/50 for US 1 million total compensation, but more in the region of 30/70 for someone with about US$500K for total compensation.  Director level and above, cash portion was subject to a 24 month claw back which was pro-rated. If someone leaves or is terminated with cause or not performing duties at the twelve month mark, the firm can in theory take back 50% of this cash bonus.  Furthermore, the non-cash portion is split into 20% regular stock, whilst 80% ages into the Partner Asset Facility (PAF) scheme. These are leveraged loans and mortgage backed debt on the bank’s balance sheet, managed by the firm’s fund management division.  Many bankers are effectively writing off these sums given to long holding period. In theory however, returns could be multiples of initial investment given the high leverage provided by the bank to the facility.  For senior management, 50% of the bonus was provided in cash with a 24 months pro-rated claw back. This also applies to Directors and above. The remaining 50-80% is interlined with the firm’s “toxic” portfolio and 20% allocation would likely be in Credit Suisse stock.  Across the range senior managers at the company are believed to be down approximately 50-60%, with poor performing ones down as much as 90%.  Base salaries were frozen. Bonus Talks, 18 January 2010 Page 16 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  17. 17. Credit Suisse - continued 2007 – 2008  Credit Suisse bonuses were largely flat to down YoY. There was strong disappointment in sales across all asset classes in Asia.  Equities were 70% up on revenues and generally flat YoY with bonus.  Stock level of 2007 bonus award was from 15-30% dependent on level.  Equity component vests in 3 years. Bonus Talks, 18 January 2010 Page 17 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  18. 18. DEUTSCHE 2009-2010 BASE ADJUSTMENT  Across the board an upside of min 25 to 33% for Director and below, MDs as high as 50% BONUS TALKS  Official announcement to be made on 3rd Jan, payout will be 12 Feb. Bonus expected to be at 18 to 24 months.  Deferral is said to be up to 75%. It is reported that the bank is paying 50% stock, 25% deferred cash, and 25% immediately accessible cash for mid-to senior level professionals, with more junior staff receiving a higher proportion in cash.  Very little on its compensation policy, except that it’s made only small changes and that a higher proportion than last year will be deferred.  Last year, bonuses were up to £100-150k (depending on division) paid entirely in cash.  Deferral period over 3 years.  No claw backs.  Guarantees a yes. Deutsche may be unaffected by the British government’s request that guaranteed bonuses in the City are limited to one year as its London operations are a branch office and don’t fall under the jurisdiction of the FSA. Bonus Talks, 18 January 2010 Page 18 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  19. 19. Deutsche - continued IN THE NEWS Germany's eleven leading financial institutions have agreed to self-regulation to limit excessive bonus payments already this year, according to Deutsche Bank Chief Executive Josef Ackermann and German Finance Minister Wolfgang Schaeuble. The commitment from all big German banks and insurers comes ahead of the Group of 20 countries' agreement to do the same in 2010 and came in response to a suggestion from Schaeuble, Ackermann said Thursday at a press conference organized by the Initiative Financial Center. The agreement was supported by eight banks and three insurers, according to a document seen by Dow Jones: Deutsche Bank AG (DB), Commerzbank AG (CBK.XE) Hypo Vereinsbank AG, DZ Bank AG, WestB AG, Landesbank Baden-Wuerttemberg, BayernLB and HSH Nordbank AG as well as insurers Allianz SE (AZ), Talanx AG and Munich RE (MUV2.XE). The self-regulation is a move to create a global level playing field with other G20 countries, the agreement said. "Our remuneration systems will be shaped in such a way that they will support even stronger our business targets toward sustainability," said the agreement seen by Dow Jones. "We explicitly support the Principles for Sound Compensation Practices - Implementation Standards of the Financial Stability Board from Sept. 25, 2009." The banks and insurers agreed to "implement these principles as quickly as possible". Schaeuble said he welcomed the agreement "because I am no great supporter [of the idea] that the state can everything better with regulation." Schaeuble also said that "consequences of the severe disruptions [of the financial crisis] won't be overcome for a long time." G-20 countries have agreed that bonus payments will defer over several years and that they will implement claw-back structures that allow bonus payments to be reduced if the long-term results of investment decisions turn sour. The U.K. took a more radical step on bankers' remuneration Wednesday, announcing a 50% tax on bonuses paid by banks that exceed GBP25,000 annually. The tax will remain effective until April 5, 2010. The government hopes the measure will raise GBP500 million. France is likely to introduce similar regulation in the future, a senior French government official told Dow Jones Thursday. Schaeuble also said the government is examining the possibility of portfolio guarantees for securitizations, but the main responsibility should be with bank. Ackermann said a sufficient supply of credits is important as is a revival of the securitization market, although excesses on such securitization markets must be prevented. He said there will be a plan for a fund to provide capital for companies in a few days and Deutsche Bank will provide EUR300 million. (Source: WSJ) – December 2009 Deutsche Bank will draw out the payment of bonuses that employees earned for 2008 over many years, its chairman told a newspaper. "For many workers at the bank, the bonus for 2008 will be drawn out over many years," Clemens Boersig told Frankfurter Allgemeine Sonntagszeitung. Pay packets such as the 14 million euros ($18 million) earned by Chief Executive Josef Ackermann will not be handed out again in the foreseeable future, Boersig said. "From today's point of view, we won't be seeing figures like this so quickly again." Boersig said that although bankers had some responsibility for the current financial crisis, low interest rates in North America also played an important part in causing it. (Source - Reuters) – February 2009 Bonus Talks, 18 January 2010 Page 19 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  20. 20. Deutsche - continued HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 50-60%.  Fixed Income - Overall reduction in bonus pool was down 30-80%.  Of the first Euro 100K, 40% of that is in restricted cash, thereafter the percentage increases. The restricted cash vests over 3 years in equal 1/3 tranches.  For select group of Managing Directors and Directors within the investment banking division, there has been an equity allocation. This has a cliff vesting on the 3rd year.  Managing Directors and Directors who receive anything over Euro 400K bonus get equity. Over Euro 1 million – 40% is in equity and 40% is in restricted cash deferred over 3 years. 2007 – 2008  Credit Suisse bonuses were largely flat to down YoY. There was strong disappointment in sales across all asset classes in Asia.  Equities were 70% up on revenues and generally flat YoY with bonus.  Stock level of 2007 bonus award was from 15-30% dependent on level.  Equity component vests in 3 years. Bonus Talks, 18 January 2010 Page 20 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  21. 21. GOLDMAN SACHS 2009 - 2010 BASE ADJUSTMENT  Yes. Reported new US$600K salaries for partner MDs, US$400K salary for MDs. BONUS TALKS  Percentage deferred not clear, rumoured to be 50%.  Deferral period is 3 years. Senior executive as required to hold 75% of their stock until they retire.  Guarantees a yes but never more than 1 year. IN THE NEWS Is being sued by a US pension fund over its compensation policies, alleging the investment bank is set to blindly reward its directors with an extravagant compensation bonanza. The bank, whose 2009 pay and bonus pool could be in excess of $22bn (£13.5bn) this year, is accused of basing its upcoming compensation payments not on the hard work of its executives but on the $10bn capital it received from the US Treasurys Troubled Assets Relief Programme (TARP). The Security Police and Fire Professionals of America Retirement Fund is a small investor in Goldmans, and is claiming the banks directors and executive officers are breaching their fiduciary duties to shareholders by failing to administer the companys compensation plan in the best interest of investors. The lawsuit, filed in the New York Supreme Court, names Lloyd Blankfein, the banks chairman and chief executive, Gary Cohn, the chief operatin g officer, and a number of board directors. The aim of the lawsuit is to recover billions of dollars Goldman will pay out in compensation this year. It also alleges that the companys past financial results were achieved by excessive risk-taking for short-term gains rather than the companys long-term health. The filing comes less than a week after the banks board changed its policy to give shareholders a vote on its compensation policy at its next annual meeting, and caved in to political pressure by ruling that its 30-strong management committee will receive any bonuses in long-term shares rather than cash. (Source: The Daily Telegraph) – December 2009 Bonus Talks, 18 January 2010 Page 21 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  22. 22. Goldman Sachs - continued Goldman Sachs last Thursday announced changes to the incentive compensation practices for 2009 for its top 30 managers, paying bonuses entirely in stock which is locked up for five years and tightening clawback provisions. The bank's 30-person management committee, which includes all of the global divisional and regional heads, will be paid 100% of their bonus in shares. Hong Kong-based Michael Evans, who is vice- chairman of the firm and responsible for Asia, will be among those covered by the new guidelines. The shares being allotted to the management committee members are subject to a five-year lockup. They are also subject to clawback, meaning Goldman can take back the shares if the employee has "engaged in materially improper risk analysis or failed sufficiently to raise concerns about risks." (Source: Finance Asia) – December 2009 “I often hear references to higher compensation at Goldman,” said Mr Blankfein. “What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world.” The average annual earnings returned to shareholders, per employee, totalled $196,004, compared with $79,962 at the other banks, Goldman maintained. If the bank’s fourth- quarter earnings keep up at the pace set for the first three quarters of the year, Goldman is likely to pay out an average of $650,000 in compensation to each of its 30,000 employees, matching the record set in 2007. (Source: Financial Times) – November 2009 HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 40-50%  Fixed Income - Overall reduction in bonus pool was down 55-65%. Compensation for different positions within this division:  Managing Directors : 10-20% cash, 80-90% stock  Directors : 30-40% cash, 60-70% stock  VPs : 60% cash, 40% stock  Associate : 90% cash, 10% stock  Analyst : All cash Bonus Talks, 18 January 2010 Page 22 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  23. 23. Goldman Sachs - continued  Globally, the overall bonus pool was down at least 50% from last year. Across the board some Partners are down about 80% with cash components subject to caps. The credit department was down two thirds based on YoY, with total compensation for staff down approximately 20-55%.  All compensation above US$1 million in investment banking has been provided in stock. For sums below that, it is subject to the usual stock split component of 20-30%, hence effectively cash compensation was capped at US$800,000. The changes in stock versus cash seemed the most aggressive compared to Morgan Stanley or Merrill Lynch.  Bonuses for staff at VP level, was down 40-60%, with Associate bonuses reduced by approximately 30%.  In previous years, to-35% of the total compensation at senior levels was allocated in stock. Normally 40% of that would be vested immediately, with 60% over 3 years and 100% of that would be delivered after 3 years and was then free to be sold. rd  Now, there is no immediate vesting, 1/3 vests over 1 year, another 3 after 2 years and the remaining after 3 years. Stock is now delivered after 3 years under the new regime but cannot be sold until after 5 years.  In addition, the firm would calculate retirement based on the employees age and years of service, which had to add up to 55. So if someone were to be 40 for example and had worked at the bank for 15 years, they could retire now and have the entire stock vested immediately. This “retirement age” has now been extended to 60 years in addition to which staff at the bank will also have to work an extra year to qualify for this system. Bonus Talks, 18 January 2010 Page 23 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  24. 24. Goldman Sachs - continued 2007 - 2008  Goldman was considered well paid and was 20% up YoY, while Equities paid better than FICC. Given the well publicised losses as a result of the subprime crisis, there is wide spread feeling at GS that bonuses were less than deserved. Despite the fact that some people are happy with their bonuses, some employees have left / looking to leave as they were allegedly told one number and then on the day of announcements their bonus was cut by 10% globally.  Star performers were paid up to 20% up, middle tier on par with the other major investment banks and bottom 5% pared.  Goldman’s typical equity payment as a percentage of bonus has been historically low compared to their competitors and this year is no different. Typical equity components have ranged from 0 – 15%, varying among division and seniority.  40% of equity payments vest immediately, whereas the remaining 60% vests after 3 years. Bonus Talks, 18 January 2010 Page 24 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  25. 25. HSBC 2009 – 2010 BASE ADJUSTMENT  No increases on bases expected as the bank still looking to control costs. BONUS TALKS  Bonuses are anticipated to be bigger next year selectively for good performers. Staffs are expecting a huge hike in targets but also an increase in earnings potential for those that are successful.  With the 50% tax on UK bonus they are also expecting to see more use of alternative rewards such as increased equity, options. IN THE NEWS HSBC revealed yesterday that costs in its investment bank at the half year had risen to "reflect a rise in performance-related pay," while Barclays reported that the "average net income generated per member of staff" in the investment bank had increased in the half from £134,000 last year to £188,000. Although neither bank decides bonuses until early next year, the strong performance of both "casino" banking arms has put the 21,900 investment banking staff at Barclays and 22,000 at HSBC on course for a big payday, despite £1.2 trillion of UK taxpayer support for the industry. Extrapolating from historic data, Barclays' bankers would be on target for an average of £200,000 each this year. John Varley, Barclays' chief executive who claimed to have been "humbled" by the crisis, acknowledged that the bank "has benefited from the support for the system" even though it has not taken any taxpayer money directly, unlike Royal Bank of Scotland and Lloyds Banking Group. "We have to be sensitive to what we are hearing," he said. "[But] our customers and shareholders want us to hire and retain the best people. The payment of an appropriate amount is important." Bob Diamond, the bank's president, insisted the bank's remuneration policy is "very principled because it's about risk- adjusted performance". He conceded that the bank has hired 200 staff on guaranteed bonuses this year and admitted to having contravened regulatory guidelines by awarding multi-year guaranteed bonuses to "less than a handful". Mike Geoghegan, HSBC chief executive, said: "We intend to be competitive [but] we don't give [multi-year] guaranteed bonuses and are disappointed when others do, as we don't think it's the right thing to do." The Centre for Economic and Business Research has estimated that bankers will receive £3.2bn of bonuses this year, down from a peak of £8.8bn in 2006. In reference to taxpayer support, Mr Varley said the bank "takes its obligation very seriously" as demonstrated by its April commitment to lend £11bn to UK households and businesses this year. Barclays has already lent £17bn in six months. The targets are not as stretching as those set for Lloyds and RBS. On a similar net basis, mortgage lending rose £2.2bn at Barclays but small business lending decreased by £500m and commercial lending fell by £5bn. HSBC provided £4.2bn of net new mortgage lending and £500m of net new small Bonus Talks, 18 January 2010 Page 25 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  26. 26. HSBC – continued business lending. Both banks claimed credit applications from businesses are down by about a quarter. Barclays said it approved 90pc of applications. Politicians are concerned banks are hoarding credit. George Osborne, Shadow Chancellor, said: "Banks should watch out that they do not misuse taxpayer support – it's designed to facilitate lending, not mega pay deals." The details came as the banks reported half-year results. Barclays pre-tax profits rose by 8pc to £2.98bn on revenue up 37pc to £16.25bn, driven by a doubling of profits in the investment bank to £1.05bn. Bad debts for the group climbed 86pc to £4.56bn. (Source: Sunday Times) – August 2009 HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 60%.  Fixed Income - Overall reduction in bonus pool was down 50-70%. Compensation for different positions within this division:  Managing Directors : 40% cash, 60% in vested stock  Directors : 50-60% cash, 40-50% vested stock  VPs : 70% cash, 30% vested stock  Associate : 80% cash, 20% vested stock  Analyst : All cash  The Asian bonus pool overall was down 40-60%.  The better performers appear to be about 25% down. Some members of staff are believed to be 60 to 100% down. Bonuses comprised of cash and stock. There were no caps on cash bonuses although larger bonuses command a higher component of stock.  Global corporate sales pool was down 40%, specifically Singapore corporate sales team were down 40-60%. Bonus Talks, 18 January 2010 Page 26 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  27. 27. JP MORGAN 2009 - 2010 BASE ADJUSTMENT  Jan 2010. Recently said it will be lifting its salary freeze early next year. According to insiders it’s expecting to increase salaries “in line with the market,” although it’s not expected to increase them to the extent of UBS, BOA ML or Citigroup. BONUS TALKS  Percentage deferred not clear, period will be 3 years – Nothing in year 1, 50% in year 2, 50% in year 3.  Claw backs in place, but only in the event of dishonest and improper behaviour.  Guarantees a yes. IN THE NEWS JP Morgan Chase signalled today that City firms are preparing to make huge bonus payments after it kicked off the US bank reporting season by smashing profit expectations. The bank revealed it had set aside $7.3bn (£4.6bn) in the third quarter to pay staff, taking the total remuneration pot for the first nine months of the year to $21bn, 23% more than at the same time last year. The admission by JP Morgan Chase that it was preparing to raise bonuses came as Goldman Sachs was expected to report that it too was enjoying a bumper year and its bonus pool could reach $22bn. Mounting expectations that bankers are looking forward to huge pay cheques barely a year after the banking system was bailed out by governments across the world have forced the biggest payers in the City to capitulate to government demands to adopt the G20 principles on pay. After a meeting with City minister Lord Myners in the Treasury a dozen international banks agreed to support the reforms to pay structures that would require bonuses to be spread over three years and clawed back if profitable deals turned sour later. Three European banks which are not regulated directly by the Financial Services Authority but which have large City operations – BNP Paribas, Deutsche Bank and Société Générale – also agreed to sign up to the principles. The banks, which included Goldman Sachs, JP Morgan and Bank of America Merrill Lynch, issued a joint statement in which they pledged to "work with the FSA and regulators in our home countries in adopting the reforms, recognising that all G20 nations have also committed to their implementation to ensure a level playing field". But this does not mean that the banks will cap the size of payouts. The figures from JP Morgan showed that the bonus pool from which staff would be paid was being hugely inflated by revenues from the Bonus Talks, 18 January 2010 Page 27 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  28. 28. JP Morgan – continued bond markets, spurred by the need of governments to pay for bank bailouts. Research by the Wall Street Journal showed that employees at JP Morgan were expected to earn an average of $133,971 this year. At Goldman Sachs the estimate is even higher, with average pay expected to be $743,112. Jamie Dimon, chief executive of JP Morgan, insisted that the bank's guidelines already followed the G20 strictures. "We're committed to treating each individual properly," said Dimon. The prospect of big financial services payouts has infuriated unions. Speaking at a London conference on private equity today TUC leader Brendan Barber said: "I would question the 2% management fee and 20% cut of profits that has allowed an elite in the industry to do very well. "There is also a question of tax. It was one of private equity's senior figures who said he paid less tax than his cleaner. It is still the case that private equity people pay capital gains and that represents less tax than a cleaner pays. "This is not just about the industry improving its public relations. It is also about substance and how much the industry has really changed." JP Morgan was the first of four major US banks to report third-quarter figures this week. Goldman and Citi report on Thursday and Bank of America Merrill Lynch on Friday. JP Morgan's net profits of $0.82 a share in the three months to 30 September were much greater than Wall Street's expectations of $0.49- $0.51. Dimon credited "broad-based growth" across JP Morgan's investment banking, asset management, commercial banking and retail banking operations. But he also warned that consumers were finding it increasingly hard to repay loans, particularly on credit cards, where the bank expected to lose "a lot of money". "While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue," said Dimon, who repaid government bailout money three months ago. JP Morgan set aside another $2bn to cover future losses on personal loans. Provisions for credit card losses grew to $5bn, more than double the amount put aside a year ago. Its retail banking arm made a bad-debt provision of almost $4bn to cover consumer loans that turn sour, up from $3.85bn three months ago. The overall strong performance was partly due to a $400m "write-up" on the value of JP Morgan's legacy leveraged lending and mortgage-related assets. JP Morgan's investment banking arm made net profits of $1.92bn, while commercial banking made $341m. However, the large provisions against credit losses meant that retail banking made a net profit of just $7m, while the credit card arm lost $700m. (Source: Guardian) – October 2009 It turns out there was a mix-up in JPMorgan Chase’s million-dollar bonus count in the report released Thursday by New York’s attorney general, Andrew M. Cuomo. That report said that JPMorgan had 1,626 people who each received bonuses of more than $1 million last year. The real number of million-dollar bonuses at JPMorgan was — drumroll, please — 1,144, according to JPMorgan, which provided the figure Friday morning. The attorney general’s office did not dispute that figure. The discrepancy arose because JPMorgan included workers’ salaries in the data it provided to the attorney general’s office, while all the other banks did not. So a person at JPMorgan who earned a $150,000 salary and a $900,000 bonus was counted in Mr. Cuomo’s tally, even though his or her bonus was shy of $1 million. JPMorgan also included stock options and commissions in the numbers it provided to Mr. Cuomo. Friday’s story in The New York Times on the report noted in an accompanying graphic that JPMorgan’s figure included salaries, but the comparable figure was not known until Friday, when the bank finished reviewing its bonus payments. With 1,144 million-dollar-plus bonuses, JPMorgan still comes out as the No. 1 employer of high-rollers among the nine banks in the report — but only in absolute figures, not relative to the number of employees. The bank with the second-highest number of million-dollar-plus bonuses was Goldman Sachs, with 953. JPMorgan has more than seven times the employees that Goldman has. (Source: NY Times) – July 2009 Just last year, Patrik Edsparr left JP Morgan Chase for the hedge fund Citadel, prompting JP Morgan to sue the recruiting firm who helped the hedge fund poach the senior executive. Now Edsparr's move will be litigated again because he's suing the bank over a promised $2.3 million bonus. Bloomberg News got its mits on a London court filing in which Edsparr claims that last year JPMorgan said it could only pay him half of his expected bonus of $5 million. Later, however, JP Morgan said Edspar wouldn't get even that half bonus because of what the complaint describes as “an unparticularized allegation of violation of nonsolicitation agreements contained in unidentified agreements." We think that's code for JP Morgan thinking Edsparr stole either clients or employees from the bank. So now Edsparr suing for the $2.3 million payment, plus interest. Edsparr Bonus Talks, 18 January 2010 Page 28 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  29. 29. JP Morgan – continued left JPMorgan last spring to become European chief executive and global head of fixed income at Citadel. He ran JP Morgan's foreign exchange, fixed income, proprietary trading and principal investment business, and had served on the bank’s executive committee. (Source: Bloomberg) – May 2009 HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 50-75%  Fixed Income - Overall reduction in bonus pool was down 30-50%.  No claw back Bonus breakdown:  US$100,000 : 80% cash, 20% stock  US$200,000 : 75% cash, 25% stock  US$300,000-US$400,000 : 65% cash, 35% stock  US$400,000-US$500,000 : 60% cash, 40% stock  US$500,000-US$700,000 : 55% cash, 45% stock  US$1-1.5 million : 45% cash, 55% stock  US$1.5-2.5 million : 35% cash, 65% stock  US$2.5-3 million : 30% cash, 70% stock  US$3 million and above : 30% cash, 70% stock with additional special restricted stock Bonus Talks, 18 January 2010 Page 29 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  30. 30. JP Morgan – continued 2007 – 2008  General sentiment is one of disappointment. Equities were down and incurred some losses last year due to position management, which were recouped to some degree by prop trading gains.  Brought together a large meeting in London to look at risk management in greater detail.  In Global Markets the aggregate bonus pool was reportedly flat even though production was up. It is alleged that the individual had to generate 35% more revenue to be paid the same bonus as last year. If they generated same P & L as last year they would have been paid less bonus versus last year.  FX and Rates paid 20-30% up in sales.  40% of bonus was paid in equity.  5% of the equity component was paid in 18 months, while the rest vests in year 2 and 3. Bonus Talks, 18 January 2010 Page 30 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  31. 31. BANK OF AMERICA / MERRILL LYNCH 2009 – 2010 BASE ADJUSTMENT  Yes. Some managing directors said to be on £300K. VPs said to be on £120K. BONUS TALKS  Percentage deferred is not clear as yet. Last year BOA tried to defer 70% of the bonus pool over 3 years, but was forced to reduce this to 2 years when staff complained following the payment of large bonuses at Merrill Lynch.  Deferral period is options vested over 3 years, with a third becoming available in each year.  Claw back in place.  Guarantees a yes, and paid to new hires like Sanaz Zaimi (rumoured £24m over two years). Guarantees also said to have been paid to retain existing staff. Bonus Talks, 18 January 2010 Page 31 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  32. 32. BOA / Merrill Lynch – continued IN THE NEWS In a rare move, a federal judge threw out a deal in which Bank of America Corp. would have paid $33 million to settle charges that it misled shareholders about $3.6 billion in bonuses being paid to Merrill Lynch & Co. executives, contending that the punishment was too light. U.S. District Judge Jed Rakoff in New York also lashed out at federal regulators, saying they didn't dig deeply enough to determine whether Bank of America executives intentionally set out to deceive shareholders about plans to pay bonuses to employees of Merrill Lynch last year, when the bank was acquiring the Wall Street firm. (Source: LA Times) – September 2009 HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 60-70%.  Fixed Income - Overall reduction in bonus pool was down 60-70%.  In Global Markets, the top performers are down 40-50% and the average performers are down 60-70% across all asset classes. Overall sales were paid better than trading and structuring. The stock component is approximately 30-40% of the total bonus.  Managing Directors across the board were down by 30-80%. The top performers comprise of 3-5% of the staff, who were subject to 30% to 40% reductions in some situations. Some senior members of staff were believed to be contented with their bonuses. 2007 – 2008  Merrill Lynch in Asia has been paid well, with expectations managed. They are roughly 20% up YoY. Focus has been on star performers; non-performers were paid zero bonuses in some cases as an alternative to redundancies. By and large, Asia has been paid much better that Europe and the US.  Equities have been paid well, with performers up 20% to 30% YoY. FX / Rates Sales are up on last year by 20% to 30%.  Regarded as one of the highest equity components in 2007 bonuses along with UBS, where most individuals were paid 30% equity.  Equity component will vest in 2 to 3 years. Bonus Talks, 18 January 2010 Page 32 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  33. 33. MORGAN STANLEY 2009 – 2010 BASE ADJUSTMENT  Yes. In May, Morgan Stanley reportedly increased base salaries for MDs to $400k, up from $250k. 25-30% of total compensation will come from base salary in future, up from 15-20% historically. It is reported that a select few Morgan Stanley bankers will receive base salaries of $1m. BONUS TALKS  Percentage deferred not clear, period will be over 3 year.  Claw backs in place. Is active for three years after compensation has been paid, and which is triggered by ‘conduct detrimental to the company or one of its businesses.’  Guarantees a yes. IN THE NEWS Morgan Stanley's 62,000 employees look set to take home an average of $250,000 (£152,000) in pay and bonus this year, despite the bank posting losses for the last three quarters. It set aside 72 per cent of its second quarter revenue for staff compensation and benefits, way higher than more successful rivals such as Goldman Sachs. Details of Morgan Stanley's largesse emerged as stricken US insurance giant AIG, which has received billions of dollars in federal aid, withheld $2.4million in bonuses due to be paid to dozens of senior managers. Morgan Stanley has set aside 72 per cent of its second quarter revenue for staff. The bonuses were not paid because AIG is still in talks with Washington compensation czar Kenneth Feinberg on a number of issues. The $850million cost of repaying interest on its government bailout and a drop in fixed income helped push Morgan Stanley into the red by $1.26billion (£768million) last quarter. The Wall Street firm says it would have made a profit had it not been for the accounting implications of an improvement in the market value of its own debt. But the loss was far worse than investors had expected. In true banker speak, chief financial officer Colm Kelleher described 2009 as a 'year of transition'. Morgan Stanley set aside $3.9billion for compensation expenses in the second quarter of its financial year. This was up from $3.1billion a year earlier, though a joint venture deal means that staff numbers have climbed by around 16,000. This would suggest the average annual pay and bonus would be $62,000 for the quarter or $250,000 for the year (Source: Mail) – July 2009 Bonus Talks, 18 January 2010 Page 33 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  34. 34. Morgan Stanley – continued Morgan Stanley said it would raise the base salaries of most of its top officers and many top-earning employees in an effort to reduce the importance of their annual bonuses. The move comes as the U.S. government pushes its own overhaul of compensation practices at banks and securities firms. Those companies got government assistance after investors lost confidence in their balance sheets, and are now facing tougher oversight aimed at curbing the sort of excessive risk-taking that helped cause the continuing financial crisis. Under the changes announced after the close of regular trading Friday, the base salary of Morgan Stanley Co-Presidents James Gorman and Walid Chammah will increase by one- third to $800,000 a year, according to a securities filing. Chief Financial Officer Colm Kelleher, Chief Legal Officer Gary Lynch and Chief Administrative Officer Thomas Nides will get a base salary of $750,000 each. All five executives previously had a base salary between $300,000 and $600,000. In fiscal 2008, Messrs. Chammah, Kelleher, Lynch and Nides had base salaries ranging from $300,000 to $322,903, according to a proxy filing by Morgan Stanley. Mr. Gorman's base salary wasn't disclosed in the filing. Morgan Stanley Chairman and Chief Executive John Mack's salary will remain unchanged at $800,000. The move shows Morgan Stanley and other Wall Street firms acknowledge compensation was part of the problem that led to the financial crisis. Big year-end bonuses based on recent profits drove traders, investment bankers, risk managers and top executives at Wall Street firms to juice up their bets to maximize short-term profit while greatly increasing risk. "The salary adjustments are not intended to increase total annual compensation," but to restore a balance between fixed and variable compensation, the firm said in its filing Friday. The company's board approved the changes this past week. The roughly 1,000 Morgan Stanley managing directors also will see their base salaries increase. People familiar with the matter said the move is necessary to compete with the pay at competitors like Goldman Sachs Group Inc. Under the changes, managing directors will see about 25% to 30% of their overall compensation come from their base salary, up from about 15% to 20%, said a person familiar with the matter. A managing director making $250,000 in base salary could now see that salary rise to $400,000. The move to de-emphasize bonuses is likely to win praise from some Wall Street critics, though others want lower overall pay. Defenders of the traditional pay structure on Wall Street lament the potential decline of the bonus culture, partly because it could take away some of the incentive to generate profitable ideas for firms and their clients. In the first quarter, Morgan Stanley's overall compensation and benefits fell about 45% from a year earlier. Several top executives, including Mr. Mack, took no bonus in 2008. (Source: WSJ) – May 2009 Morgan Stanley should be barred from paying as much as $3 billion to entice brokers to stay when the company and Citigroup Inc 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, 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 Bonus Talks, 18 January 2010 Page 34 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  35. 35. Morgan Stanley – continued 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 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. – March 2009 HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 50%.  Fixed Income - Overall reduction in bonus pool was down 70-80%.  80% of bonus was paid in cash, whiles 10% restricted cash for amount over US$100K.  Some claw back clause on restricted cash.  Bonuses across product lines, FX – down 20-25%, Credit – down 75-80%, Rates – down 30-50%.  Senior Executive Directors and Managing Directors, on average were down 40% to no bonuses. The norm would be down 55-65%. Generally accepted graciously as John Mach announced that top management committee would be down 65 to 75%.  In the past, it is practice to pay on basis of actual revenues as well as potential; this year was strictly on actual revenues only. No Executive Director was paid US$ 1 million an above in most parts of the region. rd  For VPs and EDs, for example the 3 top of class, their YoY were down 40-45%. Top senior VPs and junior EDs received US$1 million+ in 2007-2008, hence for 2008-2009, it will be circa US$600K, as to what a top Senior Associate would have received for the previous year.  Mid-rankers were down 50-60%, bottom 3rd received very little absolute returns. Bonus Talks, 18 January 2010 Page 35 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  36. 36. Morgan Stanley – continued HISTORICAL 2008 – 2009  Equity - Overall reduction in bonus pool was down 50%.  Fixed Income - Overall reduction in bonus pool was down 70-80%.  80% of bonus was paid in cash, whiles 10% restricted cash for amount over US$100K.  Some claw back clause on restricted cash.  Bonuses across product lines, FX – down 20-25%, Credit – down 75-80%, Rates – down 30-50%.  Senior Executive Directors and Managing Directors, on average were down 40% to no bonuses. The norm would be down 55-65%. Generally accepted graciously as John Mach announced that top management committee would be down 65 to 75%.  In the past, it is practice to pay on basis of actual revenues as well as potential; this year was strictly on actual revenues only. No Executive Director was paid US$ 1 million an above in most parts of the region. rd  For VPs and EDs, for example the 3 top of class, their YoY were down 40-45%. Top senior VPs and junior EDs received US$1 million+ in 2007-2008, hence for 2008-2009, it will be circa US$600K, as to what a top Senior Associate would have received for the previous year.  Mid-rankers were down 50-60%, bottom 3rd received very little absolute returns. Bonus Talks, 18 January 2010 Page 36 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  37. 37. Morgan Stanley – continued 2007 - 2008  Morgan Stanley bonuses were largely flat to 10-20% up YoY. FICC people were quite disappointed, as a good payout was to stay flat from last year. It is reported that most people are down by up to 20%. Most of the senior people within FICC are substantially down on last year; due to a lot of senior new hires that had guaranteed bonuses. Equities people were paid well which meant 10-20% up on last year. Overall sentiment within fixed income is pretty grim – with most people are open to opportunities.  In Equity Derivatives sales, strong team members were up 30% YoY. Asia paid better vs. US and Europe for the first time.  20% to 30%, dependant on level and performance.  Vesting period up to 3 years. Bonus Talks, 18 January 2010 Page 37 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  38. 38. ROYAL BANK OF SCOTLAND 2009-2010 BASE ADJUSTMENT  None. But rumoured hike in flexible benefits component. BONUS TALKS  Estimated at 9-12 months, percentage deferred most staff will receive 50% of their 2009 payment in paper immediately convertible into cash in June 2010. A further 25% will be available in June 2011, with the remainder available in June 2012, possibly in UK government bonds. Senior managers will receive 33% of their bonus each year, spread over three years. Executive directors will receive nothing until 2012.  Deferral period is 3 years for most staff.  Claw backs in place.  Guarantees a yes. Significant increase. Think Antonio Polverino. As with other banks in the City, RBS has, however, agreed to the British government’s ban on multi-year guarantees. IN THE NEWS Is preparing to negotiate a new long-term bonus plan for Stephen Hester, the chief executive, and other senior directors as the row over bank bonuses continues. The news came as RBS shareholders voted overwhelmingly in favour of the banks entry into the governments insurance scheme for £282 billion of its most risky securities and the issue of £25.5 billion of new shares to the Government, which takes the states economic interest in the bank to 84.4 per cent. Sir Philip Hampton, RBSs chairman, told shareholders that the board was preparing to consult institutional investors and the Financial Services Authority over a new incentive plan for all executives that would be put to a vote at next years annual meeting. Mr Hesters plan will replace a performance-based package that could have resulted in the chief executive collecting about £9.6 million if he managed to raise RBSs share price to 70p, among other targets. The board will put in place new three and five-year targets, with a maximum payout that could top the present £9.6 million. The bank has already agreed to pay all of its bonuses in shares, deferred over three years and subject to a clawback option based on performance. More than 99.4 per cent of the votes cast at the special meeting in Edinburgh yesterday were in favour of RBS joining the Governments Asset Protection Scheme, which will cost £700 million a year in fees over the next three Bonus Talks, 18 January 2010 Page 38 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  39. 39. RBS – continued years. The Government was barred from voting on the proposal but a simple majority of RBSs institutional and small shareholders approved the deal. (Source: The Times) – December 2009 City headhunters say they are getting calls from Royal Bank of Scotland derivatives sales and trading staffers, who say they will quit in the New Year if they do not receive competitive performance-related bonuses for 2009. The U.K. Treasury has threatened to veto an estimated GBP1.5 billion (USD2.48 billion) in bonuses that the firm is set to award its investment banking staff for 2009. There also possible legal remedies for the staffers. If, for example, a trader had in their contract that they would get 5% of their desks P&L at the end of every year, and the government comes in and interferes with this contractual agreementthen the trader has a legal, contractual right against the government for taking such measures, said Ronnie Fox, principal of Fox Law Firm in London. (Source: Derivatives Week) – December 2009 HISTORICAL 2008-2009  Minimal cash bonus and no stock. They’ve been paid in senior debt which RBS makes markets in so that on the vested date it can be transferred into cash.  There is a claw back provision on a portion of the senior debt based on the previous year’s performance. On the claw back portion it may be possible to take a loan against the debt. The senior debt vests over 3 years. Bonus Talks, 18 January 2010 Page 39 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  40. 40. UBS 2009 – 2010 BASE ADJUSTMENT  Yes, significant. Some MDs at UBS now said to be on £300k. Possible increases in base salaries of 10% to 15%. BONUS TALKS  Percentage deferred - ‘The larger the bonus, the bigger the deferred equity compensation.’ Some MDs and SVPs/directors said to receive 100% stock bonuses last year.  Likely vesting period of 2 to 3 years period.  Claw backs in place.  Guarantees a yes, talk of town is Rajeev Misra said to have joined on generous package. Bonus Talks, 18 January 2010 Page 40 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  41. 41. UBS – continued HISTORICAL 2008-2009  Equity - Overall reduction in bonus pool was down 40-60%.  Fixed Income - Overall reduction in bonus pool was down 60-80%.  No claw back clause.  US$50K was the cap of the cash bonus.  There is also a component of restricted cash, which was capped at US$300K. This restricted cash will vest over 3 years and will be contingent on the performance of the firm globally.  In summary the total bonus in FICC for top performers was US$350K all cash, but out of that US$300K is restricted.  Senior Management was eligible for additional stock, but this does not apply across the firm. 2007-2008  While there is a huge spread of bonus levels across UBS, bonuses were generally flat to up YoY. Levels were managed down considerably, and Equities were relatively happy with what they received, although large proportions in equity. Trading was paid well in Asia, up 10-30% YoY.  Bonuses were heavily correlated to P&L performers across all Asset classes.  The first USD250K is 15-20% in stock. Next USD$250K is 50% in stock and anything above USD$500K is 75% in stock. The firm is trying to persuade investment bankers to stick with the company by allowing them to sell some of their share-based bonuses after just one year.  Usual stock award goes into the normal vesting period of 3 years. For this year only, a unique payment was made to employees (approximately 20% of total bonus) which will vest in December 2008. This is believed to be a retention strategy. Bonus Talks, 18 January 2010 Page 41 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  42. 42. OTHER BANKS ANZ One of the earliest bonus schedules with payment announcements in November & actual payments before the years end. Bonuses in 2009 for senior investment bankers were in the range of the equivalent of 6 months salary, compared to 12 months for 2008. CIMB GK GOH Two thirds cash component paid over three stages between February and November 2010. One third in stock vested over three years CALYON Rumors allude to the idea that HR is implementing a new appraisal system worldwide for a more 'scientifical' assessment of the performance and intended to enable a more fair determination of the bonuses. Details of how this may work are yet to be clarified and whether it will be split between cash or shares. CLSA Bonus pool information not forthcoming from senior management. Annoucements are expected in early March. DRESDNER (COMMERZBANK) The merger between Dresdner and Commerzbank is almost complete and bonuses for this year are likely to be very small with a new form of bonus structure under creation. Government intervention may provide further hindrances. Bonus Talks, 18 January 2010 Page 42 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619
  43. 43. Other Banks – continued HSBC (International Division) The HSBC department that is ‘quasi private banking’ for expatriate clients. No increases on base salaries are expected as the bank is still looking to control costs. Larger bonuses are expected in 2010 but only for those who are able to deliver. Large increases in targets are expected from existing staff. With the 50% tax on UK bonuses alternative rewards such as equity and options are anticipated RABOBANK Bonus information not forthcoming from senior management. Announcements may be likely around the 10th March with actual bonuses paid on 28th March, 2010. RHB BANK Bonus payment and information not forthcoming until late January or February 2010. ~ End of Document ~ Bonus Talks, 18 January 2010 Page 43 of 43 TIGLON PARTNERS ASIA PTE LTD l Level 57 Republic Plaza 9 Raffles Place Singapore 048619