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Meager profits don’t affect bonuses

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Scott Jagow: Wall Street’s big investment banks keep delivering bad news. On this week’s agenda, a sour profit report from JP Morgan Chase. JP Morgan, like its fellow banks, will also be cutting some jobs. But for the executives who are still around, Fortune Magazine’s Allan Sloan says those bonuses probably won’t be any smaller this year.

Allan Sloan: Absolutely. Unbalanced — you know, unless you happened to have been in the mortgage business, this has been a very, very good year in the market. Stocks are doing very well, even though some of the Wall Street houses have now taken write-downs for their subprime stuff. You know, generally, they’ve done very well. And when the market goes down and the house makes money, the bonuses are immense. And we still have the hedge-fund phenomenon. So there’s gonna be a lot of money sloshing around New York, and Wall Street in general this year. Unfortunately, not much of it will be mine, and possibly even less of it will be your’s.

Jagow: Haha, yeah definitely less will be mine. But there’s such a cautious attitude on Wall Street right now. You don’t think that’s gonna impact bonuses for these executives?

Sloan: It’s amazing — the cautious attitude impacts hiring people, it impacts laying people off. But I doubt any of the big houses are gonna hold back on bonuses to the top people, because they’re worried about, you know, keeping the money around in case of trouble. And their explanation will be, “Gee, if we don’t pay Allan all of this money, he’s gonna go down the street and go to a hedge fund.” So, there’s a great justification to pay the people you want to pay and pay them a lot, because otherwise you say they’ll leave. So you always find a reason to give a lot of money to the people you want to give a lot of money to. And in this case, the people you don’t want to give anything to, who are the people involved with residential real estate and mortgages and such, well, you just fire them, because that’s the Wall Street way.

Jagow: Well, we’ve seen big job losses on Wall Street before. Where do these people wind up usually?

Sloan: What we used to say is that the time you should sell stocks is when your taxi driver is giving you stock-picking advice. The time you should buy stocks is when the guy driving your taxi used to be an analyst that helped you pick stocks. So if you ever get in a taxi and the guy tells you all about his life as a mortgage-backed securities broker, it’s probably time to go back into mortgages.

Jagow: All right, I’ll remember that. Allan Sloan from Fortune Magazine. Thank you.

Sloan: You’re welcome, Scott.

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