Is Your Stockbroker Getting TARP Money?

by | Jan 17, 2009 | Stock Market Comments

This may be enlightening.   Guess what?  In some cases,

Your Stockbroker is Getting TARP Money.

Not just the brokerage firm, YOUR stockbroker himself or herself is getting TARP money.

Last week, Citigroup announced a deal to sell Smith Barney to Morgan Stanley.  In my opinion, a very dumb decision, but hey, they are panicking over at the big Citi.

Besides your money, the true “assets” at a brokerage firm are the salesforce (the brokers).  They like to be called “financial consultants” not “the salesforce.”  OK, whatever.  They sell, sell, sell and generate the revenues.

When brokerage firms are sold, the acquiring company doesn’t want the “assets” to leave, so the salesforce (financial consultants) are paid a “retention bonus” to stay with the new merged company.  And it’s often a factor of their trailing twelve months commissions (and often 100% of that number, but sometimes more).  It is usually paid upfront, with a “forgivable note” if they stay with the firm a certain length of time.

So, which retail brokers are getting retention bonuses?

Merrill Lynch brokers get bonuses RIGHT NOW as the salesforce was just sold to Bank of America.
Smith Barney brokers will be getting bonuses as the salesforce was just sold to Morgan Stanley.
Morgan Stanley brokers will be getting retention bonuses as well.
Wachovia brokers are getting retention bonuses as the salesforce was just sold to Wells Fargo.
Even American Express is getting TARP money.


Citigroup received a BOATLOAD of TARP money…$45 billion.
Bank of America also just received $20 billion in TARP money this week (and are paying the retention bonuses to Merrill brokers next week).
In fact, Morgan Stanley has lined up to receive TARP money, as did Wachovia, Wells Fargo, you name it.

Here are some numbers to think about:  According to sources, Merrill Lynch brokers generated $12 billion in commissions over the previous 12 months.  If the average retention bonus is 50%,  Merrill Lynch brokers would be getting $6 billion dollars in TARP money.

But the average retention bonus looks to be at LEAST 100%, not 50%.  Some brokers will be getting significantly MORE than 100% of their trailing 12 months gross commissions in bonuses.

This is SHAMEFUL.  And WRONG.  And should be stopped.

And, according to some, the retention deal is likely to be 80% in cash and 20% in stock.  That’s billions in taxpayer TARP money (your money) being handed over to stockbrokers.  Now I am certain that these firms will flatly deny, and will say “no TARP money was used in retention bonuses.”  But banks and brokerage firms are not specifically showing where TARP money is being spent.  It is all commingled in one giant vat of free money.

Your money.

In fact, Bank of America, apparently could not complete the deal to buy Merrill unless they received TARP money.

Oh, one more thing about these retention deals…the average “payout” for brokers differs from firm to firm.  But the average payout falls somewhere between 30% and 40%.  Suppose your broker sells you an annuity or mutual fund.  You invest $50,000, and suppose they get 4% (which you may not see).  The gross commission would be $2000.  Depending on their payout, the broker receives between $600 and $800 (or 30% to 40%).

Well, as part of these retention deals, many higher producers will receive 60% payout on commissions over the next twelve months.  So there is an additional incentive to generate more transactions.

Lucky you!

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