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A problem with Wall Street bonuses

Marketplace Staff Oct 11, 2010

A problem with Wall Street bonuses

Marketplace Staff Oct 11, 2010


BILL RADKE: Remember when Wall Street firms defended their big bonuses by saying we have to pay these people a lot if we want to attract top talent? Today’s Wall Street Journal reports some of the giant signing bonuses haven’t worked out so well lately. Joining us live from New York is the author of this morning’s piece, Aaron Lucchetti. Aaron, thanks for joining us.

AARON LUCCHETTI: Good to be here.

RADKE: Securities firms like Wells Fargo, Morgan Stanley,
Bank of America and others paid these 6- and 7-figure bonuses to lure brokers away from rival companies. Why haven’t they worked out?

LUCCHETTI: Well the markets have been tough. It’s a very competitive world for brokers right now and with markets not soaring like they used to, it’s difficult for brokers to make money. And it’s even more difficult for the firms to make money off brokers when they’ve given these big, guaranteed bonuses.

RADKE: Should that make me think any differently about these firms’ argument that they have to pay huge bonuses to keep effective top talent?

LUCCHETTI: You know, it’s really a variation on that theme. And they’ve said that for years about traders and they’ve said that about investment bankers, but it’s also true of brokers. Brokers can jump across the street — go from UBS to Wells Fargo or vice versa. So the firms really want to keep those brokers. The broker is one of the more stable sources of revenues for these companies, especially in a world where trading is up and down and is facing heavier regulation.

RADKE: That’s right. The brokerage business, that was supposed to be the stable part of the business.

LUCCHETTI: Right. It’s still stable, but it’s just less profitable for the firms when you pay 30, 40, 50 percent of all the revenues to the brokers. The brokers’ argument, of course, is “Hey, we’re the ones that are talking to clients. They trust me, not necessarily the firm, especially after what’s happened with the financial crisis. So I’m pretty valuable here.”

RADKE: And just a few more seconds Aaron, you write that some of these firms are going to arbitration and getting these bonuses back. Is that like a mortgage borrower reneging on their promise to pay back the loan?

LUCCHETTI: It’s a great argument. The firm’s say, “Look, you signed a contract, you have to live by it.” You’re in a business of trust and in a business where people are supposed to value your word. So to go back on a contract is pretty difficult.

RADKE: Wall Street Journal reporter Aaron Lucchetti joining us live, thanks a lot.

LUCCHETTI: Good to be here. Thank you.

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