Wall Street Bank Chiefs Waive Bonuses

The chief executives of Merrill Lynch and Morgan Stanley have waived their bonuses amid an extraordinary intervention by New York's attorney general, who warned that awarding windfalls at bailed-out banks represented a "thumb in the eye to taxpayers."

In the latest sign that the era of big bonuses in the financial industry is over, Merrill boss John Thain reportedly refused a bonus and his Morgan Stanley counterpart, John Mack, confirmed that he will not accept a bonus for the second year running.

"I have decided and recommended to the Compensation Committee that given the extraordinary challenges facing the financial industry... I will forgo a bonus for 2008," said Mack in a memo to staff.

New York attorney general Andrew Cuomo wrote to the Merrill board yesterday following a report that the bank's chief executive, John Thain, had requested a $10m (£6.7m) bonus. In a scathing letter, Cuomo said awarding a multi-million dollar bonus package to Merrill executives was unacceptable in the same year that the bank has posted net losses of $11.67bn.

"Current reports that the board is considering giving Merrill's chief executive officer a $10 million bonus are nothing less than shocking. Utilizing Merrill's own criteria, a bonus of this size appears unjustified," he said. Cuomo added that Merrill had avoided the same fate as its bankrupt competitor Lehman Brothers by agreeing to a takeover by Bank of America, which had in turn been helped by a $15bn payout from the taxpayer-funded $700bn Troubled Asset Relief Program.

"Paying executives at Merrill millions each in 'performance' bonuses in this context would be oxymoronic to say the least and certainly a thumb in the eye to taxpayers. Enough is enough," said Cuomo in the letter, which was posted on the attorney general's website. Cuomo added that if the board was determined to pay executive bonuses, he would seek a meeting to discuss the proposal.

Merrill declined to comment. According to the Wall Street Journal website, Thain told the compensation committee last night that he did not want a bonus this year. Sources close to the situation also told the Journal that Thain had not requested the $10m that had so enraged Cuomo.

Morgan Stanley is another beneficiary of TARP funds, having received $10bn from the program. Mack added in his memo that future pay awards would include "claw back" provisions that allow the bank to award bonuses that vest over three years. Those bonuses can then be reclaimed by Morgan Stanley if the individual commits a serious error that results in a "significant financial loss or other reputational harm".

Cuomo warned last month that any institution receiving funds from the TARP must not use federal cash to fund executive bonuses.

Merrill has not requested Tarp money but has sought safety in a takeover by Bank of America, which received $15bn from the US treasury program. The transaction removed the immediate risk that Merrill would follow Lehman Brothers into the severe difficulties that ultimately ended in bankruptcy.

Bank of America declined to comment. It said Merrill remained an independent company until the takeover is completed this month. However, a spokesman confirmed that the bank has pledged not to use Tarp funds to pay for executive bonuses.

Thain joined Merrill a year ago from the New York Stock Exchange and was paid $9.6m by the NYSE in 2006. He received a "golden hello" of $15m and his basic salary at Merrill is $750,000.

Goldman Sachs, which shared a record $18.8bn bonus pool last year, has taken steps to head off a PR furore over pay this year after receiving $10bn from the TARP. Its top executives, braced for bleak fourth-quarter earnings, have asked the bank's compensation committee to scrap their bonuses for this year.