Sunday, February 13, 2005

That Line at the Ferrari Dealer? It's Bonus Season on Wall Street

December 28, 2004
By JENNY ANDERSON

Samantha Kleier Forbes, a 30-year-old real estate broker,
was getting ready to leave for a vacation to Florida with
her mother and sister when she got an urgent call. It was a
client who had spent the summer scouring the Upper East
Side of Manhattan for an apartment priced between $4
million and $5 million.

The client insisted on seeing more apartments that day, but
now she wanted to look in the $6 million range. Her
husband, a banker at Goldman Sachs in his late 30's, had
just received his year-end bonus.

"Normally this time of year is dead," said Ms. Forbes, a
vice president at Gumley Haft Kleier, a residential real
estate brokerage. But this winter there is unusual buying
interest that she attributes to rich Wall Street bonuses.
She is cutting her end-of-the-year vacation short, so she
can prepare for an onslaught of clients eager to see
apartments.

The year-end bonus is a Wall Street tradition, and for a
second consecutive year, the amounts are significant. Three
major Wall Street firms - Goldman Sachs, Lehman Brothers
and Bear Stearns - have reported record profits for the
year and all are said to have given out handsome bonuses.

The totals in 2003 were already impressive: Lloyd S.
Blankfein, the president and chief operating officer of
Goldman Sachs made $20.1 million, of that only $600,000 was
salary; and E. Stanley O'Neal, the chief executive of
Merrill Lynch, received a bonus of $13.5 million and
restricted stock worth $11.2 million on top of his $500,000
salary. At the other end of the compensation spectrum, an
investment banking analyst right out of college would have
made a $65,000 salary and a $35,000 bonus last year. An
associate just out of business school might have made
$85,000 in salary and a $115,000 bonus.

This year, investment bankers are expected to see gains in
bonuses of 10 to 15 percent, amid a year-end flurry of
mergers. Fixed-income traders, who have been the best
compensated Wall Street professionals in recent years, will
also be amply rewarded, but their percentage gains may be
smaller than those of bankers. Bonuses, of course, vary by
bank, by division and by individual. They reflect the
firm's profitability and the group's performance, as well
as the individual's contribution.

This year's bonuses do not quite reach the heights touched
by star bankers and traders in the heyday of the late
1990's technology bubble. But they are rich enough to
persuade many of Wall Street's elite to rediscover
conspicuous consumption.

One senior trader is building a sports complex for
triathlon training at his house in upstate New York. It
will include a swim-in-place lap pool, a climbing wall and
a fitness center. Another bought an Aston Martin. For some,
upgrading real estate is the first order of business.

But many Wall Street professionals are urging caution,
given that the bonus typically constitutes the majority of
their compensation. More than a dozen bankers, all of whom
would talk about their spending only on the condition of
anonymity, said they were all too aware that the good times
could end as quickly as they did after 2000, when a $2.5
million income could turn to $800,000 overnight.

"Given the last two to three years when people figured out
that this business is pretty volatile, they are going to
try and bank a lot of their bonuses," said one managing
director at a firm where bonuses have been announced.
"They've seen too many people laid off and they realize
they can't just spend all their money."

It should be noted that this same banker just bought a
$150,000 Aston Martin to park in his garage in Greenwich,
Conn.

Another senior banker at a different firm, who is set to
receive a $2.8 million bonus, said he had bought his wife a
mink coat and was planning a weeklong skiing vacation out
West. But he also said he intended to save most of the
money. "We're not buying homes or boats, we're not spending
on the big things," he said. "We are more relaxed and
generous on the small things."

Of course, small is in the eye of the beholder. While the
Maybach, an exclusive line of luxury cars made by
Mercedes-Benz that starts at $315,000, appears on the wish
lists of many bankers, relatively less expensive models
from Aston Martin, Bentley and Maserati have also been
popular. Michael Parchment, general manager for Miller
Motorcars, a luxury dealership in Greenwich, said demand
had been soaring.

"It's probably up 20 to 30 percent from the same time
period last year," he said. "Unfortunately, production
isn't up." The result, he said, are some unhappy bankers.

Wall Street bonuses are expected to total $15.9 billion in
2004 - second only to $19.5 billion in 2000- according to
Alan G. Hevesi, the state comptroller of New York. In 2003,
bonuses totaled $15.8 billion. Mr. Hevesi said bonuses of
that magnitude were "good news for New York."

"It's all taxable income and it means that folks have more
disposable income so they will spend money," he said.

Bonus season is always a particularly angst-ridden time for
Wall Street. Managers haggle for more money for their
employees, divisions fight for a bigger piece of the pie
and bankers try to portray themselves as indispensable. In
the end, few admit to being happy, at least to their
bosses.

"We used to say there's no amount of compensation that
amounts to people saying thank you," said Roy C. Smith, a
former Goldman Sachs partner who is now a professor of
finance at New York University. "They are either sullen or
mutinous, but never quite happy."

Midlevel employees did especially well this year. Three
senior-level managers at Wall Street firms said that the
people who were enjoying the biggest percentage increases
over all were second- and third-level associates and
junior-level vice presidents.

The ranks of those managers had been thinned after the
stock market bubble burst. But this year, a reinvigorated
market meant there were too few associates and managing
directors to put together client pitches. At least three
banks had to guarantee bonus increases of 25 to 50 percent
to prevent defections to other firms. The result is that a
third-year associate who might have made $200,000 in income
last year could receive $350,000 this year.

The manager with the Aston Martin said that last year's
compensation packages for associates were ridiculously low.
"You had third-year associates making $210,000 to $225,000;
a lot of these guys are married and have young kids and
they are working" very hard, he said.

Many of those associates are expected to use their new
wealth to pay off debts incurred from three years of
relatively meager bonuses.

But real estate will draw, as usual, a significant portion
of the bonuses.

"Usually we get five phone calls a week," said Richard
Steinberg, a managing director at Warburg Realty
Partnership who shows apartments priced from $10 million to
$20 million. "Since bonuses, we've gotten double that from
hedge funds, Wall Streeters and money managers. I've gotten
more phone calls since Dec. 15 than from any other year."

Late-night entertainment may also benefit from the rise in
bonuses, given Wall Street's reputation as something of a
boys' club.

"Certainly the Wall Street crowd is very special to us,"
said Lonnie Hanover, a representative for Scores, a
high-end strip club in Manhattan. "December is an amazing
month for our business, but it's everything, it's Christmas
bonuses, Christmas spirit. They have their official parties
and then the unofficial party here."

Even the cautious are probably going to treat at least part
of their bonus as play money.

One senior investment banker at a big Wall Street firm said
he was putting this year's money "directly into the bank."

"I have a sailboat, a motor boat, an apartment, an
S.U.V.," he said. "What could I possibly need?" After brief
reflection, however, he continued: "Maybe a little Porsche
for the Hamptons house, but probably not."

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