Wall Street's Smorgasbord of Bonuses

This is traditionally the biggest weekend of the year for jewelers, furriers and luxury car dealers in the New York area. No, it's not Christmas we're talking about. This is the weekend after Wall Street's investment bankers find out about their year-end bonuses.

And what a year it has been! More than $1 trillion in U.S. mergers this year, and nearly $2.3 trillion worldwide, according to data compiled by Bloomberg. The Securities Industry Association estimates that should help generate pretax profits among Wall Street firms of $21 billion. Add to that billions more for Wall Street's deal lawyers who sup at the same sumptuous table.

Among Wall Street's winners, the biggest is Goldman Sachs, which won the merger and acquisition sweepstakes for the fifth year running. Goldman reported that its profit rose 23 percent for the year, to an all-time high of $5.61 billion. For Chairman Henry M. Paulson, that worked out to a payday valued at $37 million. Morgan Stanley chief executive John Mack will have to console himself with a mere $11.5 million -- but that's because he's only been on the job for five months.

What's driving this year's M&A boom, and the bonuses it generates, is the enormous amount of money looking for a productive use. That includes the record profits sitting in corporate treasuries, along with the record sums raised by hedge funds and private equity funds over the past two years.

Just last week, for example, General Dynamics announced it would buy government technology contractor Anteon for $2.1 billion in cash, Conoco Phillips said it would buy Burlington Resources in a cash and stock deal valued at $35.6 billion, and Viacom's Paramount unit edged out General Electric to pick up Steven Spielberg's Dreamworks studio for a cool $1.6 billion. Albertson's, the struggling food chain, is on the verge of being sold to a trio of investors for $9.6 billion, the Wall Street Journal reported. And so big are the premiums on such deals that Quiznos, the fast-growing sandwich franchise, decided to put itself up for sale as well.

The theory behind this dealmaking is that it creates bigger, more efficient companies along with synergies that improve product quality and spur innovation. In practice, it often doesn't work out that way, as Steve Case acknowledged in these pages last weekend, when he called for undoing the financially disastrous merger of Time Warner and AOL that he helped engineer. Various economic studies have found that mergers wind up destroying more shareholder value than they create.

Wall Street looks at all this through a much narrower prism. It not only likes what it sees, but sees no reason why it can't continue at the current pace indefinitely.

"Next year may be the best year ever for mergers and acquisitions," Morgan Stanley's Paul Taubman told Bloomberg. "We're entering '06 in a healthier environment than even 2000."

Of course, it depends on what you mean by healthy. Investment bankers remember the year 2000 fondly, as the high water mark for mergers and acquisitions. Most of the rest of us, however, remember 2000 as the year the Internet and telecom bubbles burst, stock prices plunged and the economy began sliding into recession.