Wall St. bonuses: So much money, so few Ferraris

By Jenny Anderson
The New York Times
Monday, December 25, 2006

http://www.nytimes.com/2006/12/25/business/25bonus.html?hp&ex=1167109200...

It's a brisk Wednesday morning in the windy caverns of Wall Street and Sarah Clark's toes are cold.

Dressed in a purple flight attendant outfit, Ms. Clark, a 26-year-old model, is trying to entice recent bonus recipients at Goldman Sachs into using a charter plane service, handing out $1,000 discount coupons to people in front of the investment bank’s Broad Street headquarters.

"Where am I going?" asks one man, heading toward the Goldman building. "It's your own private jet," says Ms. Clark with a smile. "You can go wherever you like."

For Wall Street's elite, the sky may well be the limit.

In recent weeks, immense riches have been rained upon the top bankers and traders. After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million. And a select group of hedge fund managers and private equity executives may be taking home even more.

That is serious money. And the serious luxury goods markets are feeling the impact.

Miller Motorcars in Greenwich, Conn., is fielding more requests for the $250,000 Ferrari 599 GTB Fiorano than it can possibly fill. One real estate broker laments a dearth of listings for two clients trying to spend $20 million on Manhattan properties. Financiers already comfortably settled in multimillion-dollar apartments and town houses are buying $5 million apartments for their children. Vacation homes, usually bought and sold in the spring, are now hot this winter, including ones in private resorts like the Yellowstone Club in Montana near Yellowstone National Park.

"Last year, everybody bought Ducatis," said one investment banker, referring to the Italian motorcycle. "This year it's vacations. I'm on my way to St. Bart's," he said, en route to the airport. Like most bankers, he spoke on the condition that he not be identified, because he was not authorized to talk to a reporter by his company.

The 2006 bonus gold rush has re-energized some luxury markets. The Manhattan real estate market, for example, had softened; sales of apartments fell 17 percent in the third quarter this year compared with a year ago, according to the Corcoran Group.

Then came bonus day. Last week, Michele Kleier, president of Gumley Haft Kleier, received a call from a hedge fund manager in his late 30s. He had spent $6 million on an apartment two years ago and, with his bonus, wanted to upgrade. His new price range? "Not more than $20 million."

Ed Petrie, a broker at Sotheby's in East Hampton, N.Y., is now fielding two bids for $8 million to $10 million properties in exclusive Georgica Pond -- properties that have been on the market since the spring. "The fall was relatively slow and then suddenly, with news on bonuses, there has been quite a bit of activity," he said.

Many brokers noticed not just the bonus effect, but the bonus-anticipation effect. Buyers who sat on the sidelines in 2006, waiting for real estate prices to come down, saw news of outsized bonuses and started signing deals to pre-empt any price increase driven by new Wall Street payouts.

"Part of our recent increase in sales activity has been buyers not in financial services trying to beat the bonus rush," said James Lansill, senior managing director at the Corcoran Sunshine Marketing Group.

Once the bonus rush started, Mr. Lansill witnessed a trend he had never seen in his 14 years in the business: People who had signed contracts for apartments under construction 5 to 6 months ago were doubling the size of the properties they were purchasing.

In the last three weeks, the Corcoran Sunshine Marketing group sold the last four apartments in the Richard Meier apartments at 165 Charles St. in Greenwich Village. The last one to go: a two-bedroom, two-bathroom apartment with 2,350 square feet that sold for just under $7 million.

Patricia Warburg Cliff, senior vice president and director for European sales at the Corcoran Group, said that until recently 2006 had been characterized by calmer, more informed buyers. "Now there's a feeling, 'I need to sign because I don't want it snatched away,'" she said.

Adding to the spending spree is a rash of young hedge fund analysts, first big bonus checks in hand, scooping up the $2 million to $3 million starter apartments (most popular features: glass walls, marble bathrooms, and kitchens -- likely to go unused -- with top-flight appliances).

"We love hedge funds. They are our favorite people," Ms. Kleier said. "They don't feel like the money is real and they don't mind spending it -- they don't mind going up by $500,000 or $1 million increments."

Hedge fund analysts are not the only ones celebrating bonus season. Private equity firms like the Blackstone Group and Kohlberg Kravis & Roberts helped fuel a record deal-making year.

Private equity's deal-making has trickled down to Wall Street in two ways. For one, the banks served as advisers on the deals and financed them, raking in enormous fees. (Kohlberg Kravis is said to pay more than $700 million a year in fees to the Street.)

But bankers also see a pay effect: Top executives insist they must pay up because of the danger that their best dealmakers could leave for higher-paying private equity firms or other hedge funds considered more flexible and fun.

Those young, single hedge fund managers are bringing holiday cheer to car dealerships as well. This year, drama surrounds the very limited production of the Ferrari 599 GTB Fiorano, a car with 612 horsepower that can go from zero to 60 miles an hour in 3.6 seconds. "It is the most sought-after car ever made," said Richard Koppelman, president of Miller Motorcars. With a waiting list of 50, Mr. Koppelman expects to get only one.

Who will be the lucky customer? "It's very difficult," he said. "We try to take care of our best clients."

Private planes, or shares of them, are also on the rise, with demand for charter planes at one company up 40 percent to 50 percent among financial services executives. "There is a noticeable difference this year compared to the past, especially in the financial sector," said Jeffrey Menaged, founder and head of Chief Executive Air, the company that hired Ms. Clark for the day. A typical price for a charter flight is $30,000.

Sales of "jet cards," a sort of debit card for private flying, increase during bonus season, Mr. Menaged said, as executives lock in last year's gains with guaranteed comfort for the new year.

Exotic destinations are also being pitched to the Wall Street ultra-rich. Unlimited Speed started Victory Lane in November, a 3,000-acre development in Georgia for motor racing aficionados. Along with a 4.5-mile racetrack, the development also has a 1,600-acre nature preserve, equestrian facilities, a golf course, and a spa. It already has 27 reservations, a quarter of them coming from Wall Street, said Andrew Goggin, president of Unlimited Speed.

Not everyone on Wall Street is getting multimillion-dollar bonuses. The average managing director -- who stands at the top of Wall Street's hierarchical food chain but far from rock-star status -- will be getting $1 million to $3 million, which will likely be stashed in savings as memories of the 2001 bear market remain fresh.

"I'm putting it in the bank because I know next year I could be out of a job," said one managing director at a leading bank.

For hedge fund traders and managers, markets were rough in the spring and summer, and some did not make gains until stocks rallied this fall.

"It was a terrible year," said one young hedge fund professional. "I am going to the movies with my bonus. By myself."

At cocktail parties, comparisons to 1999 abound. That year marked the height of the technology boom and the eve of a painful crash. "It feels a little bit like the top," said another banker.

The morning Goldman Sachs announced record fourth-quarter and 2006 earnings, Lloyd C. Blankfein, chairman and chief executive, implored his employees -- many whom would directly benefit from the bountiful earnings -- to avoid excess.

"As stewards of the firm's reputation, I ask each of you to remember that our actions -- inside and outside of the office -- reflect on Goldman Sachs. Even a perception of arrogance hurts all of us," he said in a voice-mail sent to the entire firm.

Back handing out vouchers in front of Goldman, Ms. Clark wondered why there weren't more people coming to work during the early hours.

Then, at 7:30 a.m., a black Mercedes pulled up, depositing Mr. Blankfein in front of Ms. Clark. The night before he had been awarded a $53.4 million bonus.

She offered him a voucher. "How are you?" he said, smiling quickly but refusing the voucher.

"I guess he didn't want it," she lamented.

* * *

Join GATA
at the
2007 Vancouver Resource Investment Conference
Vancouver Convention and Exhibition Centre
Sunday and Monday, January 21 and 22, 2007

http://www.cambridgeconferences.com/ch_jan2007.html

Admission is free for those who register in advance. The conference has arranged discount rates at the Pan Pacific Hotel adjacent to the convention center.

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at www.GATA.org. GATA is grateful for financial contributions, which are federally tax-deductible in the United States.