Bear Stearns Brokers Get $2 Million Offers to Move
By Ian Katz
March 19 (Bloomberg) — As more than 14,000 Bear Stearns
Cos. employees watch the value of their stock sink and brace for
firings, some of the companys 550 brokers who handle individual
investors accounts are receiving job offers from competitors
promising windfalls of $2 million or more.
Merrill Lynch %26amp; Co., Morgan Stanley, UBS AG and Citigroup
Inc.s Smith Barney unit are offering Bear Stearns brokers
packages that include signing bonuses of two times the revenue
they bring in annually, said Mindy Diamond, president of Diamond
Consultants LLC, a Chester, New Jersey-based executive search
company. Someone generating $1 million in commissions and fees
could receive $1.5 million up front and the rest over three
years, she said.
Competitors “are all hungry for Bear brokers, many of
whom are among the top producers in the securities industry,
Diamond said. JPMorgan Chase %26amp; Co., which agreed to buy Bear
Stearns last weekend, could try to keep the employees by
offering a so-called retention plan. JPMorgan struck an all-
stock deal that values the securities firm at $2.34 a share, or
$340 million, based on yesterdays closing price.
“The brokers arent going to get hurt, said Mitch
Vigeveno, chief executive officer of Turning Point Inc., an
executive-search firm in Safety Harbor, Florida. “They have a
book of business they can move. The ones who are going to get
hurt are other employees, like people in operations and
marketing.
Boston Hires
Morgan Stanley this week hired 12 Bear Stearns employees
with a total of $26.5 million in revenue, spokesman James
Wiggins said. “Were seeing very substantial interest on the
part of Bear Stearns brokers to come to work at Morgan
Stanley, he said.
The brokers who moved include Douglas Sharon, Alexander
Treves and Carey Bosch, who brought in combined revenue of $9
million from Bear Stearnss Boston office and will work from the
same city for Morgan Stanley, Wiggins said.
“We are always out in the competitive marketplace
identifying individuals we believe to be the best client
advisers, Merrill Lynch spokesman Erik Hendrickson said in an
e-mail. Alexander Samuelson, a spokesman for Smith Barney and
Citi Private Bank, declined to comment in an e-mail. UBS
spokesman Kris Kagel declined to comment.
`New Home
The bonuses being dangled in front of brokers underscore
the disparity between employees with transferable skills and
those whose jobs already exist at JPMorgan, which has more than
180,000 workers. The third-biggest U.S. bank by assets hasnt
said what it will do with Bears 14,153 employees. JPMorgan
spokesman Joe Evangelisti declined to comment.
The New York-based bank is unlikely to make offers
attractive enough to keep the best Bear Stearns brokers,
recruiters said.
“I think the inclination is to find a new home, said
Danny Sarch, president of Leitner Sarch Consultants in White
Plains, New York. “A lot of them had much of their net worth in
the stock, so theres a lot of anger. Bear Stearns, which
traded at $75 as recently as March 5, fell 42 cents, or 7
percent, to $5.49 at 11:01 a.m. today in New York Stock Exchange
composite trading.
Bear Stearns employees own about one-third of the common
stock, according to the companys Web site. High and mid-level
executives participate in a compensation plan tied to income per
share, a program that until recently had “worked very well for
a long time, said Alan Johnson, a New York-based compensation
consultant. The company spent $1.5 billion on stock compensation
from 2005 to 2007, last years annual report said.
Bank Run
“Its publicly known that a lot of individuals in the
company own a good part of the company so we clearly believe
there was value in the organization, Kanwardeep Ahluwalia,
Bear Stearns head of risk management for Europe and Asia, told
Bloomberg Television March 17. “But when there is a run on the
bank theres nothing you can do. I guess we have to grin and
bear it and move on to a strong partnership with JPMorgan.
Bear Stearnss Private Client Services unit accounted for
$602 million in revenue in the year ended Nov. 30, about 10
percent of the companys total, according to regulatory filings.
Brokers who brought in at least $1 million of revenue were
keeping about half of that, said Diamond. Now they will be
eligible for signing bonuses of $2 million or more, structured
as a nine-year forgivable loan, with about $1.5 million in cash,
Diamond said. The rest will be paid after reaching targets
linked to revenue and assets under management.
`Wealth Replacement
Those who generated $2 million or more in revenue may get
bonus offers of as much as 2.5 times that, or $5 million, she
said. Once they switch, brokers will be paid roughly 45 percent
of their revenue.
The average broker at global investment banks such as
Merrill Lynch brings in $700,000 in revenue annually, while
those at smaller U.S. regional firms produce around $400,000,
Diamond said.
Jumping to a competing firm can be a “quick wealth
replacement strategy to make up for money lost in Bear Stearns
stock, Diamond said. The shares were worth $169.61 on Jan. 12,
2007. “Financial advisers are famous for not practicing what
they preach about diversification.
Bear Stearns employees who had tens or hundreds of
thousands of dollars in company stock were courting danger,
financial advisers said.
“You already have so much risk tied into the company where
you work. Why add to the risk? said Lane Jones, chief
operating officer of Evensky %26amp; Katz in Coral Gables, Florida.
“Read what independent analysts are saying about your
company, said Saxon Birdsong, president of Baltimore-
Washington Financial Advisors Inc. in Columbia, Maryland.
“Dont think that because youre an employee you know better.
To contact the reporter on this story:
Ian Katz in Washington at
ikatz2@bloomberg.net.
