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J.P. Morgan's Abusive Excutives Bonuses

Companies / Credit Crisis Bailouts Feb 07, 2009 - 06:11 PM GMT

By: John_Olagues


Best Financial Markets Analysis ArticleAs readers will recall, J.P. Morgan received the first large bail-out from the New York FED of $55 Billion, guaranteed by Bear Stearns' worthless assets, to prop up its own liquidity position and buy Bear Stearns stock.

J.P. Morgan also recently received another $25 Billion in TARP payments from the Treasury.

This article is about how J.P. Morgan's executives , instead of receiving easy to detect cash bonuses, received very large bonuses in the form of Stock Appreciation Rights ( SARs ) and Restricted Stock Units. These equity compensation securities are not easy to understand or value by other than experts in the field.

SARs are very similar to employee stock options and Restricted Stock Units are very similar to Restricted Stock .

These SARs were granted on January 20, 2009, the day that the  J.P.Morgan  stock reached its lowest in five years. The stock quickly rebounded as illustrated in the graph below. The arrow indicates the day and the price of the stock when the grant was made. 

On January 22, 2008 we see a repetition of the grants of SARs with the stock hitting a low point followed by a substantial rebound in the next days.

Let's examine the size of the bonuses of the top 15 executives, at J.P. Morgan, that were granted on January, 20, 2009 and reported two days later.

See the link below:

Stock Appreciation Rights Granted

SARs Amounts    Name of        Exercise       Value 2/4/09
  Granted             Grantee           Price

  700,000             Winters             19.49            $11,300,000
  700,000             Black                19.49             $11,300,000
  500,000             Staley               19.49               $8,100,000
  300,000             Scharf               19.49              $4,890,000
  250,000             Drew                 19.49               $4,075,000
  200,000             Miller                19.49                $3,260,000
  200,000             Rauchenberger  19.49                 $3,260,000
  200,000             Smith                19.49                $3,260,000
  200,000             Zubrow             19.49                $3,260,000
  200,000             Bisignano          19.49                $3,260,000
  200,000             Mandelbaum      19.49                $3,260,000
  200,000             Cavanaugh        19.49                $3,260,000
  200,000             Cutler               19.49                $3,260,000
  200,000             Maclin               19.49                $3,260,000
  100,000             Daley                19.49                $1,630,0 00
Total value (2/6/09) of SARs Granted  =  $81,405,000 

Restricted Stock Units Granted

RSUs Amounts     Name of          Market Value     SARS Value
Granted               Grantee         of stock  2/4/09

115,474                Staley                   24.10           $2,782,923
102,644                Miller                    24.10           $2,473,720
102,644                Scharf                   24.10           $2,473,720
102,644                Smith                    24.10           $2,473,720
102,644                Bisignano              24.10           $2,473,720
102,644                Cavanaugh            24.10           $2,473,720
102,644                Drew                     24.10           $2,473,720
102,644                Maclin                  24.10            $2,473,720
  89,813                 Zubrow                 24.10            $2,164,493
  89,813                 Cutler                   24.10            $2,164,493
  59,662                 Daley                    24.10            $1,364,542
  35,926                 Rauchenberger      24.10             $865,816
Total value (2/6/09) of RSUs Granted      = $30,500,000

Total value (2/6/09)of Grants to top 15 executives= $111,905,000

These totals are far more than the top executives of Merrill Lynch were to receive as their year end bonuses in cash and equity. The New York Attorney General is supposedly investigating Merrill's executives for criminal wrong doing.

Merrill CEO, Thain was granting himself just $10 million whereas at least three Morgan executives exceeded that in equity compensation alone.

An interesting question arises from an examination of the fact that for the past two years grants were made on or around January 20. It just happened that the stock dropped prior to the grant and moved upward immediately after the grants. Its hard to accept the idea that those executives just got very lucky for two years in a row. Yes, I am suggesting collusion in the manipulation of the stock to accommodate the grants of options etc.

Some refer to this as spring-loading the options grants.

Is J.P. Morgan immune from investigation?

Now what we find is that bankers' errand boy extraordinaire CEO, James Dimon, is popping off about the ridiculous idea that J.P. Morgan does not need further bail-out money after Morgan grabbed $55 Billion in the Bear Sterns deal and another $25 Billion of TARP money in banker welfare payments. See :

If they do not need the bail-outs, let Morgan and Goldman return the welfare payments.

Perhaps also an explanation is in order of why James Dimon is not prosecuted for violations of Title 18 Section 208 U.S.C. in his role as Director of the New York Federal Bank in approving the J.P. Morgan/Bear Stearns deal .

Neither J.P. Morgan, Goldman Sachs or any other bank will return the TARP monies because the actual values of the Preferred Stock and Warrant packages  were 50% lower than what the taxpayers were forced to pay. And the actual values of those packages have dropped considerably in every case since the welfare payments to Goldman, Morgan , Bank of America etc. were made.

In the case of Bank of America and Merrill, the warrants purchased by the Treasury are down over 88% since the bail-out.

By John Olagues

John Olagues is the owner and principal consultant for Truth IN Options and a recognized authority on listed and employee stock options.

After graduating from Tulane University (where he captained the baseball team and set many of Tulane's pitching records), John applied his B.A. in mathematics and his competitive spirit to the real world of stock options.

In 1976, John became a member of the Pacific Stock Exchange in San Francisco trading and managing options positions in scores of different stocks. John joined with Blair Hull to create Options Research, the first service to provide theoretical options values to market-makers and to the general public. In 1980, he became a member of the CBOE, where he personally traded more options in more diverse situations than any other trader.

Copyright © 2009 John Olagues - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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