One would think that the award of an $18.7 million bonus would normally be sufficient to isolate you from many of the unpleasant realities of modern life. But the way things are going for David Gu, the head of Merrill’s global-rates division, it seems the old adage about money can’t buy happiness may be once again proved true.
Shortly after the Wall Street Journal disclosed on Wednesday which Merrill executives had been awarded bumper payouts, Gu was served with a subpoena from New York’s attorney general to give a deposition on his remuneration. But as if that was not bad enough, there was talk in the financial markets that one of the traders in Gu’s division had incurred a $500 million loss, which was not immediately apparent. This will inevitably lead to further questioning of why Gu has been so lavishly paid.
The Financial Times partially broke the story on February 25, writing that, “ineffective internal controls at Merrill Lynch caused the firm to understate its 2008 losses by more than $500m,” quoting the bank’s annual report. It added: “The additional $500m in losses appear to have come from the discovery that Merrill used a flawed model for measuring the value of derivatives that were used in its hedging strategy.”