Financial Crisis: Not Hitting Brokers

Just how parlous a state is Wall Street in right now? In one of the more encouraging signs I've seen of late, a fight is brewing at Merrill Lynch -- over the size of the "retention bonuses" that Bank of America is going to have to pay Merrill brokers in order to persuade them not to leave their own firm.

Officials declined to comment on criticisms of its bonus pool, but a person close to the situation told The Post the bulk of the bitterness is coming from the lowest-producing advisers - a group Merrill is looking to shed.
Indeed, some brokers have been offered zilch to stay on board the combined team, while those who have been offered bonuses - just 50 percent of the work force - represent nearly 80 percent of Merrill's broker business, this person said.

Remember, these are one-off retention bonuses we're talking about here, not the annual bonuses which Wall Street spends so much time obsessing about. Getting fired is very bad. Seeing your annual bonus reduced is bad. But not getting a retention bonus on top of your annual bonus? When that's the worst thing that brokers have to complain about, I can't figure that Wall Street is in particularly dire straits.

The lesson here is that good old-fashioned stockbroking has managed to survive the financial crisis pretty well. Investment bankers have seen their business dry up entirely in many cases, but stockbrokers still have their clients, and those clients are even more concerned about the market than they have been in the past. And in general, the more focused that clients are on the market, the more money the brokers make. So while institutional Wall Street is doing badly, retail-facing Wall Street still seems to be doing OK.

Update: I'm told that I've got this wrong, and that stockbrokers don't get an annual bonus, instead working on an "eat what you kill" basis. But the bigger point remains: annual compensation, going forwards at Bank of America, will be if anything higher than it was at Merrill Lynch, given that a chunk of it is paid in stock and anybody paid in Merrill Lynch stock is pretty unhappy right now. So why would you need a retention bonus on top of that?

Update 2: John Carney claims the problem is that the BofA compensation scheme might create more of a conflict of interest for brokers than existed at Merrill, with brokers incentivized to make money for the firm rather than for their clients. But how a retention bonus is supposed to fix that problem I have no idea.