Tears in Their Coffee

‘Tis a sad day on Wall Street. For they have had to endure the pain of slorping at the federal bailout trough. How humiliating! Recovering from an insane April 28, 2004 SEC deregulation of the debt-to-equity ratios applied to the mega-investment banks that permitted all this insanity in the first place (a certain Goldman chairman named Henry was one of the supplicants), those poor decimated “remaining and surviving” big financial companies were forced to use the federal access to capital to shore up their balance sheets and to acquire weaker financial institutions or pick-up inexpensive "bolt-on" companies - even if that meant buying U.S. Treasuries with borrowed money and losing money on the interest differential.

They called it "de-leveraging" (now that Morgan Stanley and Goldman were banks, the rules on debt-to-equity were rational), creating "risk" reserves (somebody has to pay on those credit default swap calls) and/or "consolidation." What these large financial players didn't do is release money into the grassroots lending markets to shore up receivable financing and fund the underlying payrolls. They elected not to be “team players” as the government had hoped.

The sadness doesn’t stop there. Oh no! Their upcoming end-of-year bonuses – $20 billion many say – were under Congressional scrutiny. That could be devastating! And those poor “private equity” firms – the cash cows supported by large minimum investments only the super-rich could afford [a few have since gone public] that plied their trade of “leveraged buyouts,” “buy, fix and flip” strategies often predicated on massive “restructuring” (read: lots of layoffs)… well they clearly were suffering. Experts were predicting that bonuses and overall compensation in those Wall Street “private equity” companies would fall by as much as 75%. Woe is their plight. And they really did post huge losses. Citing the 2009 Private Equity Compensation Report by Glocap Search LLC and Thomson Reuters, thedeal.com noted Kohlberg Kravis Roberts & Co. posted a loss of $1.1, Blackstone Group LP posted a net loss of $156.5 million, etc.

Bonus cuts? The facts seem to have proved otherwise. According to today’s thedeal.com: “The average salary not including bonus for senior associates at large buyouts is now $435,000, a 4% increase over their 2007 levels. (Don't be misled by the "senior" in senior associate; these are first year M.B.A.s...) At the principal level, large buyout funds pay an average salary (not including bonus) of $885,000, also a 4% increase from last year. Bonuses for principals at these funds rose 6% to an average of $607,000…

“But here they are, reporting increases of 6% to the average bonus?... [How is that possible? The] driving force behind the increases in compensation is [these private equity firm’s] growing asset base. Yes, deal volume has slowed considerably, but 2008 has been a relatively strong year for fundraising. When combined with 2007, which set a record for capital inflows, private equity funds continued to have the resources to maintain compensation levels and in many cases increase them, according to Glocap. This jibes with what Blackstone reported in their last quarterly: [Assets under management] of $119.4 billion, up 30% from a year ago.”

The funds indicated that pay scales and bonuses might not be so rosy next year. Tissue futures must be up. I am so sad.

I’m Peter Dekom, and I approve this message.