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View Full Version : Economics Why no outrage at Merrill Lynch Ceo's that got hundreds of millions in stock options?


googlegoogle
03-19-2009, 01:07 PM
Before the scam crashed on them and us?

This was stock fraud right?

Why can't we fine them just like AIG.

This is bothering me. We are only going after bonuses 'after' the bailouts.

What about the HUGE stock fraud that happened before the collapse? These guys are getting away with it.

KC native
03-19-2009, 01:14 PM
Fraud, maybe. This is going to be difficult to prove because they had systems to quantify risk that they can say they believed at the time. They have ways to show that they were taking precautions and that this is an abnormal event. The problem with their risk control systems was that they were misunderstood by the people at the top.

Second, Merrill was bought by BofA, so in isolation they didn't get bailed out, but BofA has been eating it in that deal. They actually tried to back away after they had committed to buy them because as they dug deeper (which they should have done on the first go round) they found out they were paying waaaaaaaay too much for Merrill.

petegz28
03-19-2009, 01:15 PM
Actually there was outrage and the NYAG I believe is working on the what's and why's.

Chief Henry
03-19-2009, 01:33 PM
No outrage over Fannie Mae's CEO Franlklyn Raines receiving $ 90 Million of bonuses over
his 5 - 6 year run at Fannie Mae.

That POS receives over $100,000 per MONTH in his pension Becaus eof those bonuses.

Thanks lollipop licker Barney Frank and his buddy Chris Dodd.

At least AIG was spreading the wealth among 7 households, while Raines hogged it all.

Stewie
03-19-2009, 03:19 PM
Stock options are a different can of worms. Much harder to punish that abuse.

JohnnyV13
03-19-2009, 03:32 PM
Much harder to punish but googlegoogle has nailed it.

The PROBLEM is this stock option structure that rewards corporate officers for short term strategies that damage their corporations in the long term.

Currently, corporate officers have to hold stock or an option for over 1 year before cashing it. I think the best solution would be to force them to hold it 3 to 5 years. That change would make it much more difficult for them to pillage their company with structural poison pills.

banyon
03-19-2009, 03:33 PM
Did we give him tax dollars to pay for his stock options?

2bikemike
03-19-2009, 09:44 PM
I have never received a stock option and know little about their value in compensation but, Wouldn't the stock have to be worth something for it to be a benefit?

What is the value of Merrill Stock? I would think it wouldn't be worth much.

KC native
03-19-2009, 11:28 PM
I have never received a stock option and know little about their value in compensation but, Wouldn't the stock have to be worth something for it to be a benefit?

What is the value of Merrill Stock? I would think it wouldn't be worth much.

Depends on when they are issued and what the strike price is (the price to buy). A lot of times these are done at the current price of the stock at the time of issuance so the executive receives any price appreciation from there. Sometimes they are issued in the money which is where the strike price is below the current market price. There's actually a big option backdating scandal that didn't get much media attention last year where several companies revised the terms of options and dated them at a low in the stock price so the executive got a little extra (aaple is probably the biggest name that did this).

When Merrill's options were issued to their executives they were issued over a number of years so as the execs exercise them and buy the stock they gradually sell the stock too. Well, this adds up to a lot of money and where a good portion if not the bulk of their total compensation comes from.

HonestChieffan
03-20-2009, 07:35 AM
There is a huge difference in the value of an option and a cash bonus. An option may have zero value and can in fact be a negative value ( those would go unexercised and allowed to expire). Id bet the reason we dont hear a lot about the ML options is that there is nothing to hear and there is no issue. Plus its difficlt to manage keeping the AIG rage focused on AIG and not on the administration and congress without adding a new level of misdirected rage.

Saul Good
03-20-2009, 08:23 AM
There is a huge difference in the value of an option and a cash bonus. An option may have zero value and can in fact be a negative value ( those would go unexercised and allowed to expire). Id bet the reason we dont hear a lot about the ML options is that there is nothing to hear and there is no issue. Plus its difficlt to manage keeping the AIG rage focused on AIG and not on the administration and congress without adding a new level of misdirected rage.

This is true, but most of the options are issued at a discount (in the money), and they can be cashed out almost immediately at a profit. Combine that with the fact that stock prices can be manipulated in the short term, and these options are almost as good as cash for corrupt executives.

HonestChieffan
03-20-2009, 08:29 AM
This is true, but most of the options are issued at a discount (in the money), and they can be cashed out almost immediately at a profit. Combine that with the fact that stock prices can be manipulated in the short term, and these options are almost as good as cash for corrupt executives.

How do you know this? What is the tax consequence to the optionee of a option that is issued below market value at the time of issuance? What are the tax consequences to the company for issuing an option that has a short waiting period vs one with a longer period? Are these Incentive stock options?

KC native
03-20-2009, 09:12 AM
How do you know this? What is the tax consequence to the optionee of a option that is issued below market value at the time of issuance? What are the tax consequences to the company for issuing an option that has a short waiting period vs one with a longer period? Are these Incentive stock options?

If it's issued in the money then the issuer (the company) must deduct the intrinsic value as compensation expense. The intrinsic value is the amount that the option is in the money. The accounting standards have changed for the better recently but are still vague. They require employers to account for some expense however they have a lot of wiggle room wrt recognizing the expense.

Companies liked to give these to executives because prior to 2006 (might be 05) they only had to put a foot note in about incentive options. This lowered their compensation expense and makes companies look more profitable. Now, they are still prevalent but have been reduced because companies now have to recognize more expense.

HonestChieffan
03-20-2009, 09:23 AM
Most people have no understanding of how options work becuase they don't recieve them and the media tends to reoprt an option as vaued at the gross value of the stock rather than explain there is a cost to the optionee at the time of exercise, there are serious tax issues that accompany how and when the option is granted, the language of the grant, the period of the option, and the market swings that can and do occur after the option is granted.

In reality, an option has zero real value until it is exercised.

BucEyedPea
03-20-2009, 09:23 AM
The best solution is to have no hope of any govt bailout if they fail. That just creates moral hazard. Forcing them to do this and that is just fascism. And the public has to practice some due diligence.

KC native
03-20-2009, 09:31 AM
Most people have no understanding of how options work becuase they don't recieve them and the media tends to reoprt an option as vaued at the gross value of the stock rather than explain there is a cost to the optionee at the time of exercise, there are serious tax issues that accompany how and when the option is granted, the language of the grant, the period of the option, and the market swings that can and do occur after the option is granted.

In reality, an option has zero real value until it is exercised.

No, there is value there. There's at least time value because of the right associated with the option.

HonestChieffan
03-20-2009, 09:32 AM
But no value until exercise.

KC native
03-20-2009, 09:35 AM
But no value until exercise.

No, because the company can buy them back at any time provided the holder of said option approves. If an exec were to retire before the options expired but didn't want to take possession of a large chunk of stock for what ever reason then the company can buy him out at retirement.

HonestChieffan
03-20-2009, 09:40 AM
No, because the company can buy them back at any time provided the holder of said option approves. If an exec were to retire before the options expired but didn't want to take possession of a large chunk of stock for what ever reason then the company can buy him out at retirement.

Only in some cases. And even then from a practical standpoint that buyback is in essence an exercise. We are both correct.