What's happening to formerly-rich Wall Street bankers, now that their stocks are worthless? Michael Shnayerson of Vanity Fair dishes up a schadenfreude-rich story filled with juicy anecdotes about masters of the financial universe who are down on their luck. While a few high rollers are still able to live high on the gilded hog — hedge-fund manager Daniel Loeb is on track to move into his 10,700-square-foot, $45 million Central Park West penthouse, for instance — others are truly suffering: "One prominent 'hedgie' recently flew to China for business —- but not on a private plane, as before. 'Why should I pay $250,000 for a private plane,' he said to a friend, 'when I can pay $20,000 to fly commercial first class?'"
That must really sting.
The lower-echelon bankers who were previously scraping by on $5 million a year are flat broke and in debt, with no way to repay.
Most 60-year-old ex–Lehman Brothers bankers likely squirreled away enough to at least scrape by on a couple of million a year. As for the 25-year-olds, they never earned enough to have much to lose. But the mid-30s or mid-40s Lehman banker who lived up to his high compensation—or beyond it—is reeling, hurting, and possibly bankrupt.
One Sunday evening in October, a former Lehmanite in his mid-30s settles into a velvet banquette at the Gramercy Park Hotel's elegant Rose Bar. At first he's circumspect. But after a couple of Johnnie Walker Blacks on the rocks, he opens up.
"Let's take a guy who makes $5 million a year," the banker suggests. "He's paid two and a half million dollars of that in equity compensation"—Lehman Brothers stock. Plus he gets to buy that stock at a 30 percent discount, so he's really getting $3.25 million in stock. "Plus appreciation? Over five years? That's $25 to $30 million!
"Then let's say a guy in that position borrowed $5 million against the $30 million in stock. It would seem a very conservative loan, right? Until the $30 million goes down to zero, which is what happened. So now he's negative $5 million."
True, that same Lehman banker got the other half of his compensation in cash. The banker nods. "For five years, he made two and a half million dollars a year in cash. So that's twelve and a half million dollars. But of course he's had to pay more or less 50 percent in taxes, so divide that and he's got six and a quarter million. He's probably spent that money over those five years—$1 million a year, it's not so hard to do, right? So he has nothing—and he has to repay that $5 million loan."
Can we all take a moment and send beams of happiness and sunshine in their direction?
Profiles in Panic (Thanks, Richard!)
