ANALYSIS - Bailed-out U.S. banks setting stage for pay bonanza

By Steve Eder

NEW YORK (Reuters) - Eight major banks which were at the front of the line for government bailouts have already set aside $117.6 billion this year to pay employees, almost as much as they paid in all of 2008, a Reuters analysis has found.

If the banks continued that pace, they would far surpass what they paid in 2008 though fall short of the watershed paydays of 2007, when the financial sector was still booming, the analysis found.

The pay offered by top banks reflects the dramatic rebound at some of them, but also shows that industry conditions have not quite been restored to 2007 levels -- before the collapse of Lehman Brothers and the fire sale of Bear Stearns, industry analysts said.

Critics say it is also a sign that banks have learned few lessons from last year's financial crisis, which has been widely blamed on Wall Street's pursuit of short-term profits that pumped up pay.

"Banks don't appear to have learned much, at least on the compensation side, from what we've been through," said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. "Don't tell me you are bringing me back to the good old days of yesterday. Getting back to pre-Bear Stearns or Lehman is not fixing it. It is setting us up for another fall."

The analysis shows that the banks have reversed losses from a year ago, reporting about $30 billion in net income so far this year. The same banks reported $60 billion in 2007 profit.

So far in 2009, the banks have set aside nearly four times their collective profits for employee pay and benefits, up from 2007, when compensation was more than double profits.

"The key is why does this model exist in finance and not in any other industries?" asked Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, who noted that investment banks routinely devote about half of their net revenues to compensation.