Back in October, a friend at Merrill told me about an arbitration award that could rock Bank of America. It was circulating via email from desk to desk, and was causing some consternation amongst the troops.
It seemed that two former Merrill Lynch brokers had bolted for Morgan Stanley after the Bank of America acquisition of MER. They argued — quite successfully — that their deferred compensation and stock awards had vested due to the change in control of Merrill Lynch. B of A begged to differ, but an arbitrator sided with the brokers. He awarded them $1.167 million in deferred comp and stock.
Here’s where things get a little interesting:
“Bank of America's purchase of Merrill Lynch could be the legal catalyst some advisors have been seeking that would allow them to depart the brokerage and take their deferred-compensation retention bonuses with them, lawyers are prepared to argue. So reports Dow Jones Newswires.
Retention contracts generally include clauses that require advisors to put in several years before they get vesting rights to their bonuses. However, vesting terms for several Merrill Lynch deferred-compensation programs state advisors can get their hands on the money if they leave with "good reason."
Was Bank of America’s acquisition of Merrill Lynch that "good reason?" The lawyer who won this arbitration has another case scheduled to go to trial in April, with more slated for autumn and even into the spring of 2012. It takes anywhere from about 12 to 18 months for a complaint to wend its way through FINRA to a final hearing.
Deferred compensation is a big deal for brokers at Merrill — especially seeing how decades of ESOP stock gains had imploded in the 2008 crisis. Since the BofA acquisition was announced in September 2008, about 3,000 advisors have left Merrill.
Of course, B of A could always pony up a little more Do-re-mi to keep the top performing advisors — I figure $500k would do it, times the remaining top 4000 or so brokers over a 5 year period. What is $2B broken up over 5 years? A mere $400 million per year — a rounding error!
If B of A decides against ponying up, those brokers with $50M in AUM who are interested in departing for greener pastures should give me a call or email . . .
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Sources: Former Merrill Lynch Brokers Win $1.167 Million Arbitration Award – Merrill Lynch Change of Control Triggers Stock Vesting for Employees Taaffe, Michael S.; Bressan, Michael D. Sarasota, FL, 10.15.2010 http://www.slk-law.com/news/default.aspx?id=758
BROKER’S WORLD: Merrill Lynch Deferred Comp Rules Face Challenge Annie Gasparro Dow Jones Newswires, November 8, 2010 http://online.wsj.com/article/BT-CO-20101108-708368.html
Merrill Retention Bonuses Face Legal Scrutiny Kathleen Laverty Dow Jones Newswires, November 8, 2010
http://online.wsj.com/article/BT-CO-20101105-715832.html
" . . . those brokers with $50M in AUM who are interested in departing for greener pastures should give me a call or email . . ." ____________
Me too.
Bah… I just bought a few SPX puts. First time I’ve really tried an outright bearish position in a while.
Still feels too early.
I love this and hate it at the same time. My issue has always been this: Merrill Lynch requires that I defer my compensation. Furthermore, Merrill Lynch requires that I invest all deferred compensation in ESOP which is then subject to a vesting schedule. Let me make sure I understand this: I make money and then you tell me how I invest it, and the terms to which I can get it? Moreover, Under Stanley O'Neil, a clause in this deferred comp plan was removed. That clause allowed for a floor in the stock, meaning that your vested deferred comp could not be worth less than what it was granted to you for at time of issue. Apparently because they suck so much and growing the price of the stock, they had these huge payouts to vested money which were always worth more than the stock price so if the got rid of it, they couldn't get hurt anymore.
Well, for me, the issue is simple. I started at Merrill in 2003 and was vesting stock starting at $70 a share and up to $108 per share until Stanley robbed the firm with his $171 million "FU" termination payout. That said when the B of A deal shook out, my average cost of stock purchase was somewhere in the $80's on average. So here is the deal. I made money. They told me how to invest it. They told me when I could invest it. They lost it. I have nothing to show for it.
Today? They give you the option of putting 50% in stock and 50% in some other Bernie Madoff scam that they can get away with because they make you sign one sided work contracts.
Sorry about the rant"¦.
FMB wrote: “Today? They give you the option of putting 50% in stock and 50% in some other Bernie Madoff scam that they can get away with because they make you sign one sided work contracts.”
Heh. Welcome to the other side of the trade, where it is actually possible to lose money. I mean your own money. Really.
Sounds eerily like retail investing. Egads!, who wants to tbe exposed ot that?!
Not so soon…!! Its hard for me to believe on this.
Way, way off topic (sorry), but this is just too good not to share…
Android app that secretly replicates text (SMS) messages marketed to “catch cheating spouses.”
And, if you have a cheating spouse, you can use this to pee into your cell phone and check for STD’s.
And here I thought they’d run out of mobile apps.
Merrill is already doing a very good job of pulling over big retail guys.
The just got a friend of mine w/ 200M in AUM and gave him an eight figure check on an 8 year deal. He monetized his book and will be done after this deal is complete.
The bids for big retail guys are off the charts right now and Merrill is right there in the bidding.
The idea and method of tying individual performance to the firm’s performance gave rise to deferred comp and ESOP plans just as described here. These schemes were birthed during prior financial calamities, including the 2001 crash, the 87 crash, and intermittent scandals.
The fortunes of many were smashed during the crash of 2008 — especially on Wall Street. Look at Bear. And then look how Jimmy Cayne lost $1 billion tied to the collapsed stock.
Some peoplke would say these comp schemes worked as advertised, and very well.
You can also check in with the folks who worked the lines at GM. Look at what their hard work got them.
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