By Joseph A. Giannone
NEW YORK (Reuters) - Merrill Lynch secretly accelerated bonus payments last year and gave at least $1 million to each of nearly 700 employees, even as the brokerage was amassing billions of dollars of losses, New York Attorney General Andrew Cuomo said in a letter to U.S. Rep. Barney Frank.
Merrill executives have drawn fire because they paid 2008 performance bonuses in December, earlier than usual and despite the fact that Merrill would by January 16 reveal $15.3 billion of fourth-quarter losses.
Those losses, the timing of the bonuses and the uproar over $1.2 million spent on decorating the office of Merrill CEO John Thain led to the ouster of Thain by Bank of America, which acquired Merrill last month.
Cuomo, who began questioning bonus plans in October after nine banks received $125 billion of U.S. Treasury capital injections, said in the letter that Merrill "secretly and prematurely" paid $3.6 billion of bonuses in December so that taxpayers would foot the bill.
"It appears that instead of disclosing their bonus plans in a transparent way as requested by my office, Merrill Lynch secretly moved up the planned date to allocate bonuses and then richly rewarded their failed executives," Cuomo wrote.
The chief executives of eight big banks were to appear before Frank's House of Representatives Financial Services Committee on Wednesday to answer questions about how they have used Treasury funds.
Lawmakers and the public have complained that banks are hoarding the cash, and enriching their executives, rather than helping revive an economy sinker deeper into recession.
Cuomo has led the charge in challenging banks that awarded performance bonuses during a year when Bear Stearns and Lehman Brothers collapsed and the industry was slammed by massive trading and portfolio losses.
"For what performance? It's called performance bonus. It's an oxymoron," Cuomo told reporters after a speech to a New York fiscal policy group on Wednesday. "It's repugnant, it's obnoxious and it's wrong."
He added, "We are in the middle of an investigation. If it is illegal, I'll do everything I can to get the money back."
Among the chief executives answering questions on how they spent taxpayer money will be Ken Lewis of Bank of America Corp
Bank of America initially received $25 billion from the Treasury and later was forced to seek $20 billion more, plus $188 billion in asset guarantees, so that it could cover Merrill's losses.
Cuomo, in the letter, said Bank of America was complicit in Merrill's efforts to award bonuses before year-end results were announced.
"This timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth-quarter earnings announcement and before the planned takeover of Merrill by Bank of America," Cuomo wrote. A copy of the letter was obtained by Reuters.
Cuomo said he bonuses averaged $91,000 per employee, but the lion's share of the total went to a select group.
The top four Merrill recipients received a combined $121 million; the next four received a combined $62 million; and the next six received a combined $66 million, according to Cuomo. The top 149 executives received a total of $858 million, and 696 received at least $1 million each, he wrote.
"These payments and their curious timing raise serious questions as to whether the Merrill Lynch and Bank of America boards of directors were derelict in their duties and violated their fiduciary obligations," Cuomo said.
By December 8, he said, "Merrill and presumably Bank of America must have been aware that the fourth quarter and yearly earnings results were disastrous."
Thain, after initially seeking a bonus for arranging the deal with Bank of America that saved his company from collapse, ultimately declined to receive a year-end payment.
Bank of America spokesman Scott Silvestri defended his bank's role, stressing that Merrill Lynch was an independent company until January 1
"Merrill management proposed and the compensation committee of their board approved the incentives," Silvestri said. "Bank of America did urge the bonuses be reduced, including those at the high end. Although we had a right of consultation, it was their ultimate decision to make."
Silvestri added that "a substantial" amount of Merrill's bonuses were contractually guaranteed.
Bank of America's top eight executives received no 2008 bonuses, while the next level of management saw their bonuses reduced by 80 percent.
Cuomo's office confirmed the existence of the letter but declined further comment.
(Additional reporting by Grant McCool; Editing by John Wallace)
