In This Article
30-Second Summary
Headline Links: Merrill Lynch Announces Write-Downs, Job Cuts
Audio: ‘Merrill Lynch Plots Mortgage-Meltdown Recovery’
Background: Recent developments at Merrill Lynch
Opinion & Analysis: Executive compensation and shareholders’ reactions
Reference: Write-down defined and executive pay
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Merrill Lynch Posts Loss as Shareholder Meetings Near
by
findingDulcinea Staff
On Thursday, Merrill Lynch announced more than $6.5 billion in write-downs and plans to cut at least 2,900 jobs, to the dismay of shareholders.
30-Second Summary
A write-down, according to Investopedia, is when a company lowers the officially listed value of “an asset because it is overvalued compared to the market value.” Corporations then write this off as a business expense.
Thursday's announcement is just the latest piece of bad news to come from Merrill Lynch, which saw longtime CEO Stan O’Neal resign in October after unveiling the company's worst-ever quarterly report.
Meanwhile, financial downturns, paired with generous executive compensation and severance packages, are causing concern among lower-rung employees and those with retirement funds at stake. As a result, the approach of annual shareholder meetings brings with it the expectation that this year’s investor gatherings will be particularly hostile.
Richard Ferlauto, the pension director at the American Federation of State, County and Municipal Employees, said, “If money is coming out of shareholders’ pockets, but the executives who are responsible are held harmless, that’s a good mixture for a shareholder revolt.”
Julie Goodridge, president of Boston-based wealth management company NorthStar Asset Management, called on shareholders of the world’s most profitable company—ExxonMobil—to address executive compensation at its annual meeting.
The submitted resolution reads, “We are concerned that the over-compensation of top executives has a negative effect on employee morale and customer trust.”
Web site CorpWatch points out that it would take the lowest-paid U.S. employee at ExxonMobil one year to make what CEO Rex Tillerson makes in one hour.
Thursday's announcement is just the latest piece of bad news to come from Merrill Lynch, which saw longtime CEO Stan O’Neal resign in October after unveiling the company's worst-ever quarterly report.
Meanwhile, financial downturns, paired with generous executive compensation and severance packages, are causing concern among lower-rung employees and those with retirement funds at stake. As a result, the approach of annual shareholder meetings brings with it the expectation that this year’s investor gatherings will be particularly hostile.
Richard Ferlauto, the pension director at the American Federation of State, County and Municipal Employees, said, “If money is coming out of shareholders’ pockets, but the executives who are responsible are held harmless, that’s a good mixture for a shareholder revolt.”
Julie Goodridge, president of Boston-based wealth management company NorthStar Asset Management, called on shareholders of the world’s most profitable company—ExxonMobil—to address executive compensation at its annual meeting.
The submitted resolution reads, “We are concerned that the over-compensation of top executives has a negative effect on employee morale and customer trust.”
Web site CorpWatch points out that it would take the lowest-paid U.S. employee at ExxonMobil one year to make what CEO Rex Tillerson makes in one hour.
Headline Links: Merrill Lynch Announces Write-Downs, Job Cuts
Reuters reports that Merrill Lynch’s “net revenue declined 69 percent to $2.93 billion. Analysts had expected $3.35 billion.”
Source: Reuters
The Financial Times writes that Merrill Lynch was “forced to raise nearly $13 billion in capital from outside investors, including sovereign wealth funds.” The paper also reports that the company was considering a total of 4,000 job cuts and another $8 billion in write-downs, on top of the $6 billion announced early Thursday.
Source: Financial Times (free registration may be required)
Audio: ‘Merrill Lynch Plots Mortgage-Meltdown Recovery’
NPR correspondent Jim Zarroli reports on how Merrill Lynch CEO John Thain is trying to bolster confidence among company shareholders.
Source: NPR
Background: Recent developments at Merrill Lynch
According to ABC News, Merrill Lynch “does not plan to raise more capital and will continue to shrink its balance sheet amid the global credit crunch, Chief Executive John Thain said.”
Source: ABC News
On April 7, “stocks rose in Europe and Asia as Merrill Lynch & Co. said the worst of the credit markets' turmoil is over, Goldman Sachs Group Inc. advised buying mining shares and companies announced more than $11 billion of mergers. U.S. index futures advanced,” according to Bloomberg.com.
Source: Bloomberg.com
At the start of the year, Merrill Lynch considered selling some of its assets to Middle Eastern and Chinese investment funds.
Source: The New York Times DealBook blog (free registration may be required)
On Oct. 30, 2007, the governing board of Merrill Lynch issued a statement announcing the immediate reitrement of CEO Stan O’Neal. This development came in the wake of the worst financial showing in the firm’s 93-year history. Merrill Lynch’s third-quarter balance sheet reflected losses of $2.3 billion and $8.4 billion in debts incurred by failed credit and mortgage-related investments.
Source: The New York Times (free registration may be required)
Opinion & Analysis: Executive compensation and shareholders’ reactions
A survey of investors and corporate governance and investor relations experts showed that they expected “major bloodletting at the meetings of financial institutions engulfed by mortgage-market woes.” Richard Ferlauto, the pension and benefit director at the American Federation of State, County and Municipal Employees, said, “If money is coming out of shareholders’ pockets, but the executives who are responsible are held harmless, that’s a good mixture for a shareholder revolt.” The company has filed 100 “say-on-pay” resolutions for shareholders this year, compared to 52 for the whole of 2007.
Source: Financial Week (free registration may be required)
Former Yahoo CEO Terry Semel said at the search engine’s annual shareholders’ meeting on June 12, 2007, “Yahoo has staked out a strong competitive position and we are better positioned than we have ever been before.” Eric Jackson, a Florida money manager, retorted, “I am surprised you did not apologize to Yahoo shareholders for the last three years of performance.” Yet Yahoo’s executive board’s pay raises were approved. Semel stepped down a week later over the company’s flagging numbers.
Source: CorpWatch
The losses suffered by banks should be reflected in employee compensation, argues Raghuram Rajan, professor of finance at the Graduate School of Business at the University of Chicago. Rajan suggests that banks take back the bonuses of underperforming CEOs and redistribute them among those who performed well last year.
Source: Financial Times (free registration may be required)
Ex-CEOs Stanley O’Neal and Charles Prince messed up, but they still received generous compensation packages when they left. Their packages averaged $100 million, according to MarketWatch’s David Weidner. “They've also been retired, not fired, which means more perks and a little dignity, even if we know better.” The brunt of the sub-prime losses is borne by the rank and file, who saw lower bonuses and job insecurity. It is almost not worth running a profitable investment bank, Weidner writes, because severance pay dwarves the bonuses awarded to successful CEOs.
Source: MarketWatch
Time magazine columnist Justin Fox argues that building “claw-back” schemes into payment packages would hinder Wall Street hiring: “Why, when times are good, would anybody take a job at a firm with clawbacks built into the compensation plan? That's why this hasn't happened and I can't really see how it will happen unless the market for Wall Street talent totally collapses.”
Source: Time
Reference: Write-down defined and executive pay
Investopedia defines a “write-down” as lowering the listed price of “an asset because it is overvalued compared to the market value.” Companies often list write-downs as an expense, reducing their income.
Source: Investopedia
The Securities and Exchange Commission provides a Web tool that compares executive salaries at 500 U.S. companies. The tool was launched about a year after the SEC strengthened rules regulating executive pay disclosure.
Source: The Securities and Exchange Commission
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