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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: bullbud who wrote (8567)	3/19/2008 1:16:33 PM
From: bullbud	Respond to of 50714

Most Big Fincl Firms' Stock Options Are Underwater - Study Last Update: 3/19/2008 1:08:00 PM By Judith Burns Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Here is more bad news for financial industry executives: More than half of the Fortune 500 firms in the sector have issued stock options that are worthless at present, a new study shows. Fully 55% of financial services and insurance companies in the Fortune 500 have stock options that are underwater, meaning the company's current stock price is below the exercise price of the options, according to Steven Hall & Partners, an independent executive-compensation consulting firm. That is up sharply from just two years ago, when just 10% of such firms had underwater options. "There's a lot of pain being dealt out," Steven Hall, managing director at the New York firm, said in a telephone interview. Bear Stearns Cos. (BSC) has been the hardest hit, as its $4.81 stock price on Monday was 95% less than the weighted average exercise price of the 19.4 million options it has outstanding, according to the study. The gap could widen if JPMorgan Chase & Co. (JPM) acquires Bear for $2 a share under a deal reached over the weekend, but Hall said Bear Stearns stock option holders already are so far out of the money that it wouldn't make much of a difference. "These options aren't just underwater, they're drowned," said Hall. Countrywide Financial (CFC), the California mortgage company, is next in line, with a stock price that is 86% less than the weighted average stock price of its outstanding stock options, the study found. Rounding out the list of the top financial firms with underwater stock options were Washington Mutual Bank (WM), CIT Group (CIT) and National City Corp. (NCC). Stock options give holders the right to buy shares at a pre-set price known as the exercise price. When the stock price exceeds the exercise price, options are said to be in the money; when the exercise price exceeds the stock price, the options are out of the money, or underwater. Financial executives typically get the bulk of their compensation in stock, restricted stock grants and stock options, and Hall said that compensation approach is working the way it should by ensuring that executives suffer along with shareholders when the stock price drops. The suffering isn't universal, however. Goldman Sachs & Co. (GS) has a current stock price that is 42% higher than the weighted average price of the more than 39 million options outstanding, the study found, making it one of the only bright lights for option holders on Wall Street. Insurance firms also fared better, with two-thirds having stock options that are above water. The current stock price for W.R. Berkley (BER), for instance, is 206% above the weighted average exercise price on outstanding options, the study showed. On average, insurance companies had stock prices that are 16% above the weighted average option exercise price, the only industry with positive results, reflecting declines in stock prices for banks, savings and loans and financial services firms. Repricing previously issued stock option grants could put options above water, but Hall does not expect that to occur very often, given companies' reluctance to seek shareholder approval for such changes. Increasing the amount of stock option grants to offset the decline in stock prices could be a challenge for firms that don't have enough shares approved for that, he added. Changes such as revising compensation arrangements to increase cash compensation and scale back options and stock grants also do not appear likely, in Hall's view. "It's a depressing story, but it's not hopeless," Hall said, noting that holders of vested stock options typically have 7 to 10 years to exercise them. For financial executives who are stuck with underwater options now, Hall offered this advice: "Hang in there, hopefully the stock price will come back." -By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns@dowjones.com (END) Dow Jones Newswires March 19, 2008 13:08 ET (17:08 GMT)