Big Banks: Paying Billions (of Borrowed Money) to Stockholders
The “new economy” in a nutshell: full-time employees need government assistance because their wages are so low. Businesses are shrinking, not growing. And corporations are borrowing money to pay it out to stockholders… because, well, that’s what the system is designed to reward.
The more I look, the more I see it. The same pattern, almost everywhere. It’s not limited to just a few rogue companies. It’s not limited to just a few industries.
And it’s not getting any better.
Here’s the view, from the financial sector.
Remember that study showing that almost one-third of bank tellers receive food stamps, Medicaid or other public assistance? The authors calculated that taxpayers pick up the tab for almost $900 million in government aid – just to bank tellers – each year. That study didn’t break those costs out by particular employer, but…
According to Glassdoor, Bank of America tellers receive an average wage of $12 per hour – or, just about poverty-line wages for a hypothetical full-time employee supporting a family of four.
And the corporation just announced another set of layoffs, bringing the total to
- about 14,300 jobs eliminated in the past year
- about 69,000 jobs eliminated in the past five years.
But owners of the bank’s common stock are doing OK. So far this year, the corporation has distributed $3.1 billion to shareholders, through dividends and stock buybacks. And there will be even more money going to stockholders in December.
Can’t help noticing, though… Bank of America has issued a lot of bonds this year – more than $25 billion. Which means the corporation now has more than $270 billion in long-term debt that it has to pay off between now and 2047.
Yes, Bank of America is borrowing money at the same time it’s paying money out to stockholders.
(Which, yes, is sort of like running up your credit card to buy Christmas presents for people who already have everything.)
Wondering how stock prices are affected by the amount of money paid to shareholders? Last year, Bank of America announced it would increase dividends and start buybacks – but then discovered an accounting mistake and had to withdraw those plans. And stock prices fell by 6.3%.
Want to know why corporate executives care so very much about short-term stock prices? Look at the way Bank of America compensates its CEO. On the 13th of every month, Brian Moynihan receives the cash equivalent of 17,747 shares of common stock. In August, the per-share price was $17.62; for 17,747 shares, that works out to a payment of $312,702. In September, the per-share price was $16.04; that works out to $284,662. In October, the per-share price was only $15.52; that works out to $275,433. Don’t you think CEO Moynihan notices, when his monthly payment drops by ten or twenty thousand dollars?
But there’s good news for him: this month – after that latest set of layoffs was announced – the per-share price is back up above $17. (Even though the Bank is $270 billion in debt and its credit ratings are, ahem, less-than-stellar… and it borrowed almost another $3 billion since CEO Moynihan’s October payment.)
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According to Glassdoor, J.P. Morgan bank tellers also receive an average wage of $12 per hour… which is still, yes, about the poverty line for a hypothetical full-time employee trying to support a family of four.
And the corporation is, ahem, “cutting costs” by eliminating another 5,000 jobs. (Last year, they cut 7,900 jobs.)
But… stockholders are doing OK. The corporation just raised its dividend and is buying back $6.4 billion worth of its own stock. (That’s in addition to almost $18 billion in buybacks between 2010 and 2013.)
And CEO Jamie Dimon just got tagged as “the Best Big Bank CEO, Measured by Shareholder Returns.” Between buybacks and stock dividends, Dimon has “generated a total shareholder return of 119.5%” in the last decade.
Even though… can’t help noticing… J.P. Morgan had, at last report, $434.4 billion in long-term debt (which was an increase of $8.3 billion from the previous quarter). And it will be paying off debt through 2049.
I’m sure somebody at JP Morgan can explain why it makes sense to pay billions out to stockholders at the same time the corporation is borrowing billions. (And I’m sure somebody at the Federal Reserve Bank can explain why regulators approved this plan.)
And yes, folks high up the corporate ladder are doing OK, too. Their compensation includes mechanisms like restricted stock units and stock appreciation rights, which ensure they’re paying attention to share prices. For instance, Managing Director Mary Erdoes just received stock appreciation rights equal to 200,000 shares of JP Morgan stock… on a day when the stock closed at $67.39 a share. (Yep, some people get paid according to how high the stock price goes.)
Meanwhile… 5,000 JP Morgan employees will be looking for new jobs… and employees who still have their jobs get poverty wages and need government benefits to make ends meet.
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States by 2013 poverty rate
And I’m betting that if I looked, most of the other Big Banks would show this same paying-low-wages-to-employees while cutting-rather-than-expanding-the-business while borrowing-against-future-revenues so they can pay-more-money-to-stockholderspattern.
It’s not just a few employers.
It’s not just a few industries.
Borrowing money in order to pay it to shareholders is the same basic thing Bain Capital was doing, back before journalists started writing about it, when Mitt Romney ran for President.
Only, this is on a bigger scale.
These are corporations that employ hundreds of thousands of people. And they’re borrowing against future revenue, in order to pay stockholders today.
While their executives rake in millions in compensation.
And their employees need government assistance just to get by.
