For A Bank, Bank of America Has A Pretty Loose Definition Of The Word "Cash"

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You can't argue with this:

Last year, the cash portion of bonuses was paid entirely in cash.

Well glad that's cleared up then! Anyway the actual story is not complete nonsense:

Bank of America told senior bankers this week that the cash portion of investment-bank bonuses, the part that is payable immediately, will be paid 25% in cash and the rest in stock that vests immediately, said a person briefed on the matter. The shift applies to bonuses above $100,000. ...

The same bankers also will receive a portion of year-end bonuses in the form of deferred stock, as they did last year. The deferred-stock amounts will vary according to overall pay. A bank spokeswoman declined to comment.

Maybe they're using "cash" in the trading sense - meaning your "spot" bonus, as opposed to your "derivative" bonus, the one forward-settling in three years?

Actually the distinction they're making is between value and currency. If I want to give you something with a value of $X, I give you $X in cash. If I want to give you something with a value that rises and falls with the fortunes of my bank, I give you Y shares of my bank. I can have various reasons for wanting to convey different value propositions, particularly if you are responsible for the fortunes of my bank. Maybe I want you to take more, but better, risks. Or fewer, but also better, risks. Once I've decided on the value structure, though, I can still make decisions on currency. I can give you shares, or I can give you cash-settled RSUs. And if I want to give you something with a flat cash value of $X but I don't have $X then maybe I give you $X worth of my bank's stock and let you go sell it.

Basically this should be a matter of indifference to bankers, who will be getting their pseudocash bonuses in liquid marketable securities that they can quickly and easily convert to cash at the low low cost of "everyone else will be doing the same thing and pounding the stock." (But that may be set up before you get your pseudocash, depending on how the valuation date works - if the shares are valued a moment before they're delivered that shouldn't be too big a deal; if they're valued now for delivery in February, that's less pleasant.)

I guess you can read this two ways:

(1) As a signal "we have so much confidence in our bank that our senior people are going to hang on to their stock!" And there's probably some truth to that. Most people I know in banking view owning any of your company's shares for more than one minute after they become transferable as definitive proof of financial illiteracy, but every so often you'd run into very senior people who were like "oh, yeah, I spend all of my cash bonus buying calls on Goldman stock" and you'd back away slowly. I'm sure some BAC bonusholders will just forget to sell their stock, more than would go out and buy new stock anyway, and some of them, well, per the Journal: "Right now, 'I would much rather have more stock than cash,' said the person familiar with the bonus structure" and unfamiliar with both risk management and the existence of stock markets which will let you turn cash into stock. In any case, though, if this works, it's a way to get some of the governance and perception benefits of paying people in long-term stock, without the disadvantage of pissing them off with long-vesting stock bonuses.

... or ...

(2) As a signal "we have so little confidence in our bank that the best way for us to raise capital is by forcing our senior employees to sell our stock for us." BAC is talking a good game about its capital position, but they're still planning further RWA mitigation and I guess adding a bit of capital never hurt anyone. And as somebody learned recently, doing a big public equity offering tends to drive down the issuer's stock and cost a lot in bankers' fees. Making the employees sell the stock to pay their own "cash" bonuses neatly sidesteps those costs for BofA, but puts them on the employees. Who should really be demanding a gross spread for their efforts.

BofA's New Twist on Bankers' Cash Bonus [WSJ]

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