Bankers to Feel Sorry For

Lost amid the outrage over AIG bonuses are the stories of midlevel employees who were just doing their jobs. William D. Cohan talks to Alex Manos, who worked at Bear Stearns for 22 years.

Lost amid the outrage over AIG bonuses are the stories of employees who were just doing their jobs. New York Times best-selling author William D. Cohan, who wrote the Bear Stearns book House of Cards, on the story of 52-year-old Alex Manos.

Just as Warren Buffett observed so astutely that “only when the tide goes out do you discover who’s been swimming naked,” the collapses of Bear Stearns, Lehman Brothers, and AIG in the past year have left in their wake a plethora of sad—and all too human—stories of professional and financial misery.

The latest chapter in the saga comes from the beleaguered—but terribly unsympathetic—employees of AIG’s financial-products unit. There were around 400 employees in this group, most of whom had nothing to do with manufacturing and selling the dreaded “credit-default swaps”—insurance policies sold to protect investors against payment defaults on a given company’s debt securities—that plunged AIG into financial peril and have cost the American taxpayer some $175 billion so far and counting.

For 22 years, he commuted two hours each way from his home in Manalapan, New Jersey, to Brooklyn. In his final years at Bear Stearns, his base salary was a respectable $84,000.

The uproar over the so-called retention bonuses paid to AIG employees—reached a fever pitch last week with the silly decision by the House of Representatives to pass a bill that would impose a tax of 90% on the bonuses paid to any person who received one in 2009 and who also worked for a financial-services firm, such as AIG and Citigroup, that received TARP money. Ironically, this bill would not impose this outrageous tax on the $3.5 billion of bonuses paid by the nearly bankrupt Merrill Lynch just days before its deal to be sold to Bank of America closed, because those bonuses were paid in the waning days of 2008, not in 2009.

The AIG imbroglio reached its apotheosis with the publication on Wednesday of AIG executive Jake DeSantis’ angry letter of resignation in the New York Times. He was writing to Edward Liddy, the CEO of AIG, who found himself in the vortex of the political firestorm. Liddy had asked DeSantis and his colleagues to give back their bonuses. “As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings,” DeSantis wrote. “We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.” On March 16, DeSantis, a member of the financial-products unit but not part of the credit-default swaps team, received the after-tax proceeds of $742,006.40 of his bonus and, in his letter, announced he was donating it all to “organizations that are helping people who are suffering from the global downturn.”

Alex Manos would be one of those people. Manos, 52 years old and a Haiti native who came here in 1970, worked for Bear Stearns for some 25 years, starting in 1982. He cleared mortgage-backed securities trades for Bear Stearns customers, allocating the debt to their accounts every day in his office at the Metrotech Center in Brooklyn. For 22 years, he commuted two hours each way from his home in Manalapan, New Jersey, to Brooklyn. In his final years at Bear Stearns—he left the firm one month before it imploded—Manos’ base salary was a respectable $84,000 plus a bonus that varied from year to year based on the firm’s performance. In 2006—the year the five members of Bear Stearns’ executive committee split a bonus pool of around $150 million among themselves—Manos received a bonus of $24,000. In 2007, his bonus was $8,000.

When Bear Stearns went public in 1985, Manos said he received 1,886 shares of the firm’s stock. When the Bear Stearns’ stock reached its zenith—in January 2007—of $172.69 per share, Manos’ holdings were worth $325,693, a nest egg that he intended to use for his retirement and to pay off the accumulated $200,000 or so in debt he and his wife took on to pay the college tuitions for their two children, both of whom graduated from Seton Hall University. “That was my retirement money,” he said in an interview last year.

At the same time, Jimmy Cayne, the longtime CEO of Bear Stearns, owned Bear Stearns stock worth more than $1 billion, making him the only CEO on Wall Street to be worth more than $1 billion in his own company’s stock. Cayne made not selling Bear’s stock a litmus test of loyalty at the firm and broadcast this view far and wide across the firm. Many employees, such as Manos (as well as Cayne himself), responded to this clarion call by holding on to their stock to the bitter end. Others, such as Alan “Ace” Greenberg, the CEO of Bear Stearns before Cayne and a member of the executive committee to the bitter end, ignored Cayne and sold millions of dollars of Bear stock over the years.

When JPMorganChase announced it was buying Bear Stearns a year ago first for $2 a share and then for a revised $10 per share, Manos’ nest egg had shrunk to around $19,000. Since then, the fall in JPMorganChase’s stock has cut the value it further, while of course the debt he owes for student loans remains as robust as ever. “It’s just incredible to me that this could happen to the fifth-largest securities firm in the United States,” Manos said. “It always had a good reputation. It never exposed itself. It was always hedged. Ace was all about that. He always said he would rather make $2 a day than risk losing more. Then this turkey”—he says, referring to Cayne—“chose not to do that and put all his eggs in one basket.”

Jake DeSantis, meet Alex Manos.

William D. Cohan, a former senior-level M&A banker on Wall Street, is the author of The Last Tycoons: The Secret History of Lazard Freres & Co. Cohan's House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, was published by Doubleday on March 10.