We’re getting way past flogging a dead horse territory here, but yesterday, in a rich and lengthy rundown on the troubled Merrill-Bank of America marriage, the New York Times had some great new details about John Thain’s narcissism and self-delusion (a subject close to our hearts). Still, as entertaining as those are, this is definitely a story in which no one comes out looking good.
As for Thain, the former Merrill CEO, we learn that he believed he was entitled to that $40 million bonus he initially requested, on account of his “deal-making heroics”, in the Times’ words, in putting together the agreement with B of A.
His actual record, of course, was less heroic. The Times reports that Thain put a lot of effort into self-promotion, bringing in Margaret Tutwiler, with whom he had worked at the New York Stock Exchange, to run communications for the firm. Tutwiler — a veteran of Republican Washington, who was George H. W. Bush’s press secretary and in 2003 ran the State Department’s unsuccessful effort to boost America’s image abroad — “largely spent her time cultivating Mr. Thain’s image.” (Thain, of course, was a major John McCain backer, who was mentioned as a possible Treasury Secretary in a McCain administration.)
Ms. Tutwiler quickly scheduled a series of interviews for Mr. Thain from Merrill’s trading floor. As the cameras flashed, he shook hands with the troops. When the cameras left, so did Mr. Thain.
But in terms of substance, the Times makes clear there were numerous missteps. Before the B of A takeover, Thain might have made moves to mitigate the damage done to Merrill by the toxic assets on its books, but didn’t.
For months, there were inquiries from hedge funds and other buyers about a range of mortgage assets and securities, but Merrill’s mortgage desk was blocked from distributing price lists because Merrill’s management refused to agree on market estimates, according to Merrill insiders.
Despite the fact that Mr. Thain inherited these assets, Merrill insiders say they could have been hedged — moves well within Mr. Thain’s purview as head of risk management at the firm. Yet he never did so, according to three people who worked closely with him. An individual familiar with Mr. Thain’s thinking said that Mr. Thain didn’t believe hedges would have been effective.
Losses in those so-called legacy assets would reach $10 billion in the quarter.
Unsurprisingly, Thain wasn’t too popular with B of A rank and file. When news broke of his firing last month, reports the paper, “[s]pontaneous applause broke out across the trading floor and bets were placed on which one of Mr. Thain’s highly paid lieutenants would be next.”
But at least he kept believing in himself. After his ouster, the Times reports, Mr. Thain paced the halls of Merrill, venting his frustration to at least two people. “I don’t know how these people can run this company without me,” he told them.
Not that Bank of America and its CEO, Ken Lewis, come out looking much better. Since last month, Merrill and B of A have been squabbling over what the latter firm knew, and when, about Merrill’s massive fourth-quarter losses, and its decision to award bonuses — subjects being probed by the New York and North Carolina attorneys general (B of A has provided “reams of documents” to the NY investigators, says the Times). And the evidence is mounting that Bank of America knew, or should have known, just about everything.
The Times reports:
Although Mr. Lewis contends that he was surprised by the magnitude of Merrill’s losses, his financial team on the ground in New York had daily access to Merrill’s trading books, which would have allowed them to detect the mounting exposures.
To be specific:
A Bank of America executive was sent to New York from Charlotte to act as an interim chief financial officer and had daily access to Merrill’s profit-and-loss statements.
Likewise, Bank of America was well aware of the $3.2 billion in bonuses that Merrill paid to its rank and file in late December. The two companies had agreed in September that Merrill might pay up to $5.8 billion, according to a private agreement reviewed by The New York Times.
That “Bank of America executive,” by the way, appears to be J. Steele Alphin, B of A’s chief administrative officer and a close confidant of Lewis, who Thain has claimed knew about the bonuses, and who has been subpoenaed by the New York investigators.
And according to one Times source, at a December 9 B of A board meeting, Lewis did not question Thain about Merrill’s losses, even though 60 percent of those losses were already visible. Nor did Lewis tell his shareholders, who two days earlier had voted to approve the merger, about the Merrill losses.
Indeed, Lewis may have been kept as much important information from Thain as vice versa. We knew that, after seeing the losses, Lewis had gone to the government during the last two weeks of December, requesting bailout money to help digest Merrill. What we didn’t know is that, according to one source, Lewis didn’t tell Thain about his talks with the Feds till January 5.
Like we said, there aren’t many heroes here.