BofA to Pay 2007 Level Bonuses - Analyst Blog

With an attempt to retain key employees following its takeover of Merrill Lynch & Co., Bank of America Corp. (BAC) is likely to pay bonuses to its investment bankers close to what they received in 2007.

BofA is expected to pay about 25% of 2009 bonuses in cash and the rest as deferred payments of stock or cash that will fluctuate in value with BofA's performance. However, the overall payment of bonuses is expected to be slightly lower as 2007 is not a milestone of record payment of bonuses.

BofA was sued by the U.S. Securities and Exchange Commission (SEC) on the allegation of misleading shareholders over the bonuses paid by Merrill in 2008. BofA failed to inform shareholders that it had authorized Merrill to pay up to $5.8 billion. However, BofA had reached a settlement with SEC with an agreement to pay $33 million to the government.

The complications following the takeover of Merrill Lynch & Co. pushed the prior CEO of BofA into early retirement and the negotiations for a new CEO became difficult as there were pay restrictions imposed by government pay czar Kenneth Feinberg before the company repaid the federal bailout money. Finally, after a month's extensive search BofA selected its consumer banking head Brian Moynihan as its new CEO. The recent move related to the payment of bonuses by BofA could again invite controversy over Merrill's high compensation culture.

Since the end of 2009, BofA is absolutely free from pay restrictions as it has repaid in full the $45 billion government bailout money. We also anticipate continued synergies from the company's large scale operation and balance sheet restructuring.

The Zacks Consensus Estimate on BofA for fiscal year 2009 currently stands at $0.02, down 97% from fiscal 2008. Estimates appear to be substantially down. Three of the 22 analysts covering the stock have lowered estimates in the last 30 days while only one has moved in the opposite direction.

With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters with two extreme positive and two extreme negative surprises. However, the average remained negative at 4%. This implies that BofA has fallen short of the Zacks Consensus Estimate by 4% over the last four quarters.

All these factors along with the gradually improving fundamentals have helped the stock to retain its Zacks # 3 Rank. This implies a long-term 'Neutral' rating on the stock.

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