Michael Steele

RNC: Steele Spent $18,500 To Redecorate Office

Zachary Roth | May 1, 2009, 1:50PM

OK, it's small potatoes compared to John Thain's legendary $1.2 million redecoration of his Merill Lynch office suite. But still: in these cash-strapped times, we're wondering how RNC members feel about Michael Steele's decision to spend $18,500 on his own quarters.

Check out this nugget, from a Politico story about rancor between Steele and the committee members:

Read more »

Bailout

Report: Citi To Spend Around $10 Million On New Office For Pandit, Others

Zachary Roth | March 19, 2009, 12:19PM

This should go down well.

Citigroup, which has gotten $45 billion in bailout money, plans to drop around $10 million on constructing new offices for CEO Vikram Pandit and other execs, Bloomberg reports, after examining documents filed with the New York City Department of Buildings.

It sounds like the new offices will be pretty sweet:

Plans and instructions for the bank's contractors, on file with the city, specify the installation of at least one Sub-Zero Inc. refrigerator and icemaker in the renovated space, along with "premium grade" millwork and Madico Inc. "Safety Shield 800" blast-proof window film. The project encompasses 17 private offices, each with space for administrative assistants, as well as two conference rooms and open areas with "soft seating," according to the plans.

Former Merrill CEO John Thain has been widely slammed for spending $1.2 million on a 2007 redecoration of his office suite - the same year his company suffered massive losses and needed to be rescued by Bank of America*.

As for Pandit, in January he canceled an order for a corporate jet after it drew outrage, and later told Congress:

I get the new reality and I'll make sure Citi gets it as well.

* This sentence has been corrected from an earlier version.

Bank of America

Court: B of A Must Reveal Names Of Merrill Bonus Recipients

Zachary Roth | March 19, 2009, 9:52AM

While we've all been focused on those AIG bonuses, there's been a major development in the Wall street bonus saga that seemed, a week ago, like the ultimate in outrageous corporate behavior.

A court ruled yesterday that Bank of America will have to turn over to New York Attorney General Andrew Cuomo the names of the Merrill Lynch employees who received a total of $3-4 billion in bonuses. Bank of America, which since the start of the year has owned Merrill, had been resisting giving Cuomo the information.

Cuomo said he could release the names as soon as today.

Merrill approved the bonuses last December under then-CEO John Thain, on an accelerated schedule, apparently to ensure they went into effect before the firm came under the control of B of A.

Bank of America

B of A: We Care About Privacy (When It Comes To Bonuses, That Is)

Zachary Roth | March 13, 2009, 11:47AM

The judge who will decide whether information about those Merrill Lynch bonuses should be made public has said he'll make a decision within the week, Bloomberg reports.

New York Attorney General Andrew Cuomo is investigating the bonus awards, which reportedly total $3-4 billion. Bank of America, which now owns Merrill Lynch, has refused to disclose to Cuomo which Merrill employees received the awards, and how much each got.

But we particularly liked this argument from B of A's lawyer, Evan Davis, made to Judge Bernard Fried:

Americans care about their privacy. That matters to us because if we don't try to protect it and succeed in protecting it we'll lose them to foreign banks.

Aah yes, Bank of America: famed protector of privacy. When the subject is executive bonuses, that may be true. When its customers' personal information, maybe not so much.

Andrew Cuomo

Cuomo: Merrill Misled Congress On Bonuses

Zachary Roth | March 12, 2009, 11:18AM

It looks like Andrew Cuomo has escalated things in the Merrill Lynch bonus probe.

Cuomo is now accusing the firm of misleading Congress on the matter. In a court filing made yesterday, according to the Wall Street Journal, Cuomo included a November 24th letter, sent by Merrill to a House oversight committee, assuring lawmakers that no decisions on yearly bonuses had yet been made. Cuomo also filed testimony from a Merrill director, saying that on November 11th, the firm's compensation committee had decided that Merrill would pay bonuses in December, rather than January, when bonuses were usually paid (and when the firm would be under the control of Bank of America.)

Cuomo is trying to convince a judge to force Bank of America to disclose information about who got the bonuses -- which the company has so far been refusing to do.

The House Oversight committee, chaired at the time by Rep. Henry Waxman (D-CA), had asked Merrill for information on the bonuses, as part of an effort to ensure that the firm wasn't using bailout money for compensation.

There's another interesting nugget in the Journal's report:

Mr. Cuomo also disclosed that John Thain, Merrill's chairman and chief executive, was told that he would lose any chance of succeeding Kenneth Lewis as CEO of Bank of America if Mr. Thain kept pressing Merrill directors last fall for a 2008 bonus of as much as $40 million.

"He was told very strongly that you should not do that; that you would damage yourself with the Bank of America board if you do that, and if you ever wanted a chance to be in the running for my job, then that would eliminate it," Mr. Lewis said in his testimony last month, according to the filing.

Thain soon lost his chance to succeed Lewis anyway, as he was ousted in mid January amid anger over the bonuses and Merrill's massive fourth quarter losses.

Bank of America

B of A: Revealing Merrill Bonus Info Would Cause "Irreparable Harm"

Zachary Roth | March 6, 2009, 11:07AM

We didn't get to this yesterday afternoon... but it looks like Bank of America is going to the mat to avoid telling Andrew Cuomo's investigation who got those controversial Merill Lynch bonuses.

B of A, reports Bloomberg, filed court documents yesterday claiming that revealing the identities of the lucky bonus recipients would cause "grave and irreparable harm" to the firm, because it would let competitors know which areas of B of A's business the company considers most valuable, and would therefore make it easier to steal B of A's top talent. It would also create "internal dissension and consternation," and could even create security risks for those named.

In other words, if it became known who we gave huge bonuses to in a year when Merrill collapsed, people would be so mad they'd physically attack them.

Does any of this even pass the laugh test?

Former Merrill CEO John Thain has already talked to Cuomo's team about the bonuses, after a judge ordered him to do. But its not clear what he said. B of A CEO Ken Lewis refused last week to turn over a list of who got the bonuses.

Merrill gave out the awards on an accelerated schedule last December, just weeks before the failed firm came under the control of B of A. Thain has since been fired.

Andrew Cuomo

Cuomo Subpoenas More Of Merrill's Top Earners

Zachary Roth | March 5, 2009, 1:45PM

Yesterday, we noted a report in the Wall Street Journal that Merrill Lynch's top ten execs were each paid more than $10 million last year. The ten made slightly more than the top ten earners for 2007, despite the company's collapse last year.

Now, the Journal follows up by reporting that several of those execs have been subpoenaed in New York Attorney General Andrew Cuomo's investigation into Merrill's awarding of billions in bonuses.

Among the group are Andrea Orcel, who was Merrill's top investment banker, Thomas Montag, who led global sales and trading, and Peter Kraus, who ran strategy. They all now work at Bank of America, which took over Merrill after its collapse.

Another of the top ten, former Merrill CEO John Thain, has already spoken to Cuomo's investigators.

Bank of America, whose role in the bonus fiasco is also being scrutinized by Cuomo, filed a court petition yesterday to try to keep the pay information secret. B of A CEO Ken Lewis reportedly refused to answer investigators' questions on the subject when he met with them last week.

Bank of America

Merrill's Top Ten Earners Made More Last Year Than In 07

Zachary Roth | March 4, 2009, 1:23PM

"While Merrill staggered, 11 top executives were paid more than $10 million in cash and stock last year, say people familiar with the situation," reports the Wall Street Journal.

Amazingly, the top ten earners at the company in 2008, according to the paper, made slightly more than the top ten in 2007: $209 million, up from $201 million.

Remember, as you think about that, what happened to Merrill last year. It collapsed -- so wrecked by its investment in toxic mortgage assets that it had to be taken over by Bank of America. Then, even after that deal had been announced, it absorbed such massive fourth quarter losses that B of A needed $20 billion from the Treasury to digest Merrill.

None of that, of course, stopped Merrill, under then-CEO John Thain, from dishing out billions in bonuses late last year -- a decision currently being probed by New York Attorney General Andrew Cuomo.

On that front, the WSJ reports that B of A plans to file a court motion today to try to keep the compensation data from becoming public. But Cuomo will counter with his own motion arguing it should be released.

The paper also has some good thumbnails of these high-rollers:

Thomas Montag: Started as head of global sales and trading at Merrill in August and now heads global markets at Bank of America. He was handed a $39.4 million pay package and Merrill stock awards valued at approximately $50 million. The stock awards were issued to replace stock he held in Goldman Sachs Group Inc., his previous employer.

Andrea Orcel: A top Merrill banker who now heads international corporate and investment banking for Bank of America. He got $33.8 million in 2008, down from approximately $36 million in 2007. His 2007 package included a special $12 million bonus for advising Royal Bank of Scotland Group PLC and other acquirers of ABN Amro Holdings NV, a now-troubled deal.

Peter Kraus: Hired as head of strategy at Merrill in September and was given a $29.4 million contract and Merrill stock to replace his holdings in Goldman, where he used to work. He is now the chief executive officer of investment management firm AllianceBernstein. (Ed note: We wrote about Kraus's $37 million Park Avenue apartment here.)

David Gu: Head of rates at Merrill; now heads global rates and currencies at Bank of America. He made $18.7 million in 2008, down from $19.8 million in 2007.

David Goodman: Co-head of global commodities at Merrill and Bank of America. Got a two-year employment guarantee from Merrill in 2007, paying him $16.5 million in 2007 and another $16.5 million in 2008.

Bank of America

Lewis Staying Mum on Merrill Bonuses

Zachary Roth | February 27, 2009, 3:49PM

Looks like Ken Lewis isn't so eager to reveal what he knows about those controversial Merrill bonuses.

ABC News reports that that the Bank of America CEO -- subpoenaed recently by investigators for New York Attorney General Andrew Cuomo -- refused to provide the AG's office with a list of which company execs got bonuses, and how much they were worth. (For good measure, ABC adds that Lewis traveled to New York for his testimony in a $50 million corporate jet. You can see video of Lewis' arrival here.)

In response, Cuomo's office issued a subpoena to B of A to turn over that information.

The session with Lewis was "ugly and combative," in ABC's paraphrase of New York officials.

Merrill CEO John Thain earlier refused to divulge similar details about the bonuses during his own sitdown with Cuomo's investigators -- claiming B of A had told him not to. But after the AG's office obtained a court order, he was more forthcoming.

We'll see whether the same thing happens with B of A. But for now, it looks like the Bush White House's approach to subpoenas -- that they're optional -- is becoming more widespread.

Bank of America

On Merrill Bonuses B of A's Statements Don't Match Reality

Zachary Roth | February 26, 2009, 6:29PM

As New York Attorney General Andrew Cuomo's investigation continues, it's becoming increasingly clear that Bank of America, and its CEO Ken Lewis, haven't been straight on the subject of what they knew about those outlandish Merrill bonuses.

ABC News yesterday revealed details of the agreement signed by the two banks back in September, when they agreed that B of A would take over Merrill starting January 1. According to it sources, the agreement says that bonuses "shall be determined by the company (Merrill) in consultation with the parent (Bank of America)."

The network added that the two firms at first agreed that Merrill could hand out up to $5.8 billion. That figure was then added to "under $4 billion" after a conversation between Merrill CEO John Thain and a top B of A exec Steele Alphin, who's a close Lewis confidant.

In other words, Bank of America had a clear role in working with Merrill to determine the amount of the bonuses awarded.

But that's not at all how B of A has represented things.

When the Financial Times first broke (sub. req.) the bonus story last month, B of A told the paper:

Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill's chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. B of A was informed of his decision.

And in his testimony before Congress earlier this month, Lewis said:

They were a public company until the first of the year, they had a separate board, separate compensation committee and we had no authority to tell them what to do, just urged them what to do.

It's not clear whether that that outright contradicts the language of the agreement, as ABC has reported it. But whether or not the agreement gave B of A formal "authority" to set Merrill's bonus levels, it certainly gave them an explicit role in the process (assuming ABC's sources are rendering the wording of the agreement accurately). Which is a lot more than B of A's few carefully crafted public statements on the subject have implied.

Thain, Lewis, and Alphin have all been subpoenaed by Cuomo (Thain has now "told all, says ABC), so you've got to think we'll be getting to the bottom of this soon. And it doesn't seem like it'll look good for the increasingly embattled Lewis when we do.

John Thain

Thain Must Dish On Bonuses, Rules Court

Zachary Roth | February 23, 2009, 6:34PM

That was quick!

John Thain has been ordered by a New York court to testify about those controversial Merrill Lynch bonuses, reports CNBC.

Earlier today, it was reported that New York Attorney General Andrew Cuomo, who is investigating the bonuses, filed a motion to compel Thain to testify, after the disgraced former Merrill CEO refused to answer questions about the issue, claiming that Bank of America had ordered him to stay mum.

Cuomo had subpoenaed Thain for testimony. He has also subpoenaed B of A CEO Ken Lewis, and another B of A exec, but does not appear to have taken their testimony yet.

Cuomo's probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

Bank of America

Cuomo: B of A "Obstructing And Interfering" With Merrill Bonus Probe; Thain Staying Mum

Zachary Roth | February 23, 2009, 12:59PM

John Thain is staying mum about the billion-dollar bonuses he approved just weeks before Merrill Lynch came under the control of Bank of America.

New York Attorney General Andrew Cuomo, who is investigating the controversial Merrill bonuses, has filed a motion in court, seeking to compel Thain to talk about the subject, reports Reuters. Cuomo's office says that during his sit-down with investigators last week, Thain refused to do so, claiming that Bank of America has told him to keep quiet.

Cuomo's office is alleging that B of A is "obstructing and interfering" with his investigation.

That probe is seeking to determine what Bank of America knew, and when, about Merrill's decision to award the bonuses, and about the massive losses that Merrill absorbed in the fourth quarter of last year, before it was formally taken over by B of A, but after the takeover had been announced.

B of A CEO Ken Lewis was subpoenaed last week, and another company exec was subpoenaed, along with Thain, before that.

Late Update: A spokesman for Thain told the Associated Press that Thain "would answer questions about individual bonuses if compelled by the court order."

Bank of America

B of A's Lewis Subpoenaed In Merrill Bonus Probe

Zachary Roth | February 20, 2009, 1:24PM

Ken Lewis, Bank of America's embattled CEO, was subpoenaed last week in New York Attorney General Andrew Cuomo's investigation into the billion dollar bonuses awarded late last year by Merrill Lynch, reports the Wall Street Journal.

The paper adds that former Merrill CEO John Thain, who had previously been subpoenaed, talked to Cuomo's team "all day" Thursday.

Bank of America announced in September that it would acquire Merrill. In December, according to reports, Thain and the Merrill board approved billions in bonuses on an expedited schedule before the firm came under the control of B of A January 1, and despite massive fourth quarter losses.

Accounts of when Lewis and B of A learned of the bonus awards, and of the losses, have been conflicting.

Thain was ousted by Lewis last month as a senior B of A exec.

The Journal adds some more detail on what Cuomo's investigators are after:

In particular, they wanted to know why the September merger agreement contained a nonpublic attachment that outlined the maximum Merrill could pay. A Thain spokesman declined to comment.

The person close to the matter said regulators are turning their attention to Mr. Lewis and are looking at his testimony to Congress earlier this month when he said he had "no authority" over bonuses given they were detailed in the merger agreement and part of the bonuses were paid in Bank of America stock.

Mr. Cuomo's investigators are exploring how Merrill could have set and then informed employees about the bonuses before the quarter closed, according to a person familiar with the matter. They are probing whether trading losses were adequately disclosed to shareholders and boards of each company and what the top executives approving the bonuses knew about the losses.

Bailout

Thain: "I Don't Know How These People Can Run This Company Without Me"

Zachary Roth | February 9, 2009, 11:33AM

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.)

For instance:

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.

First:

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.

And:

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.

Bailout

Another AG Probing Merrill Bonuses

Zachary Roth | February 6, 2009, 1:38PM

It looks like New York Attorney General Andrew Cuomo and Neil Barofsky, the inspector general for the bailout, aren't the only people interested in looking into those bonuses Merrill gave senior execs just before the company came under the control of Bank of America.

North Carolina Attorney General Roy Cooper has issued an "investigative demand" to B of A for documents related to the bonus awards, reports the News and Observer of Charlotte. Cooper, it seems, wants to know what B of A knew about the controversial December bonuses, and when it knew it.

Bank of America, which is based in Charlotte, is required to respond by March 4.

Despite Merrill's massive fourth-quarter losses and generally dire position, the firm's then-CEO John Thain, and the company's board, approved paying the bonuses on an accelerated schedule, apparently in an effort to get them paid before B of A took contol Jan 1.

Since the bonuses came to light, Thain and B of A have given conflicting accounts as to when B of A knew about them, and about Merrill's losses.

The paper adds some detail on the legal tools that might be available to Cooper:

Under N.C. General Statutes, the state Justice Department has the power to investigate the affairs of all corporations and persons doing business in the state. Typically, this authority is used to probe businesses accused of defrauding consumers. In this case, the attorney general has multiple avenues to pursue, depending on what the documents show, a person familiar with the matter said.

The payment of the bonuses could violate the uniform fraudulent transfer act, which restricts the transfer of assets outside of normal business practices, the person said. Typically, this act is applied to debtors in bankruptcy cases who owe creditors, but it could be extended to aggrieved shareholders. Cuomo has used this law in his investigation of insurer AIG, which agreed to freeze more than $600 million it planned to pay out in bonuses.

Cuomo has reportedly issued subpoenas to Thain and B of A's chief administrative officer as part of a probe into the bonuses, which is itself part of a broader investigation announced last fall, of executive pay on Wall Street.

Cuomo is working with Neil Barofsky, the bailout inspector general.

Chris Dodd

Cuomo's Office Looking At Several Fixes For Merrill Bonuses

Zachary Roth | January 30, 2009, 2:06PM

As we told you earlier today, Bloomberg reported last night:

New York Attorney General Andrew Cuomo may demand the return of $4 billion in bonuses paid by Merrill Lynch & Co. just before it was acquired by Bank of America Corp.

But it turns out that may overstate the case a bit. A person familiar with the matter told TPMmuckraker that the investigation is considering several other possible remedies, including imposing fines and alleging violations of securities law -- as the Wall Street Journal reported yesterday.

The probe of Merill is still at an early stage. Depositions haven't yet been taken from former Merrill CEO John Thain, and Bank of America chief administrative officer J. Steele Alphin, both of whom have been subpoenaed to give investigators details on just when Bank of America learned about the bonuses, and about Merrill's massive fourth quarter losses.

If Cuomo doesn't try to get the money back, Congress might. Chris Dodd, who chairs the Senate Banking committee, declared at a press conference yesterday:

I'm going to be urging -- in fact not urging, demanding -- that the Treasury Department figures out some way to get the money back.

Barack Obama

UPDATED: Report: Cuomo May Demand Return Of Merrill Bonuses

Zachary Roth | January 30, 2009, 11:44AM

Bloomberg has a few more details about the developing investigation, conducted by New York Attorney General Andrew Cuomo, into the bonuses awarded last month by Merrill Lynch.

It reports, sourced to "a person familiar with the matter," that Cuomo may demand the return of the bonuses -- estimated at as much as $4 billion, and apparently awarded on an accelerated schedule just before the firm came under the control of Bank of America at the start of 2009.

Bloomberg adds that Cuomo is also probing what Bank of America Chief Executive Officer Ken Lewis knew about the bonuses, and about Merrill's huge losses in the fourth quarter, which appear to have ben revealed B of A around the time the bonuses were awarded.

More broadly, Bloomberg reports, the investigation is focused on "whether the companies' shareholders had all necessary information about Merrill's finances and whether federal bail-out loans to Bank of America were used properly."

John Thain, Merrill's former CEO, was ousted as a Bank of America exec shortly after news of the bonuses, and the losses, became public. According to reports, Cuomo has already subponaed Thain.

President Obama yesterday called Wall Street's awarding of billions of dollars in bonuses "outrageous." Congress is considering adding "claw back" provisions to the next round of bailout money, which would allow the Treasury to get back money it invested in banks that was then spent in ways that departed from the purpose of the government's investment.

We've got our own contact in to Cuomo's office, and will let you know what else we find out...

Late Update: Looks like Bloomberg's report may have overstated the case a bit.

AIG

AIGers Who Sold Risky Deals To Get Millions In Bonuses

Zachary Roth | January 28, 2009, 11:31AM

What would you have to do not to get a bonus?

AIG, the insurance giant that was essentially nationalized in September, has confirmed to the Associated Press that it's paying bonuses to employees who sold credit default swaps -- the very deals that helped cause millions in losses, leading to the company's collapse.

According to news reports, the bonuses amount to $450 million -- or $1.13 million for each of the 400 staffers in the financial products unit.

In a statement, an AIG spokeswoman confirmed the bonuses, but not the dollar figure:

We adopted and disclosed this contractual retention program months before the government provided support to AIG. We did so because it was clear, given the market environment, that we would need to retain employees to manage the complex issues arising in our Financial Products business, which we are now unwinding.

An expert tells AP that it's possible AIG was contractually obligated to pay the bonuses. But that points up a larger problem: the TARP didn't allow the government to invalidate those agreements, as a bankruptcy judge would have been able to do. Since AIG and other firms were essentially bankrupt, there's a good argument that the same rules should apply.

Former Merrill Lynch CEO John Thain has come in for criticism (by TPMmuckraker, among others) for signing off on billions in bonuses, on an accelerated schedule, despite seeing massive losses and a government assisted takeover by Bank of America.

John Thain

Report: Cuomo Subpoenas Thain On Bonuses

Zachary Roth | January 27, 2009, 11:11AM

CNBC's Charlie Gasparino just reported that New York Attorney General Andrew Cuomo has subpoenaed former Merrill Lynch CEO John Thain for testimony about Merrill's awarding of billions of dollars in bonuses in December.

Cuomo has been investigating the decision by Merrill to award the bonuses -- and in particular, the allegation that they were made on an accelerated schedule, before Bank of America took control of the company January 1.

Gasparino added that Bank of America chief administrative officer J. Steele Alphin, who Thain has claimed was aware of the bonuses, has also been subpoenaed.

Gasparino suggested that Cuomo could ultimately bring charges of criminal fraud against those involved in the payouts, under the Martin Act.

This looks like it could get should get interesting...

Late Update: CNBC has now posted a written story.

And here's Cuomo's statement on the subpoenas.

John Thain

Downbound Thain

Zachary Roth | January 26, 2009, 6:32PM

The John Thain rehabilitation campaign continues.

He hasn't been on The View yet, but the chair-throwing ex-Merrill CEO did the next best thing this afternoon, talking to Maria Bartiromo of CNBC about his departure last week from Bank of America, why he's not to blame for Merrill's multiple billion dollar losses, and the whether it was a good idea to spend $1.2 million of Merill's money redecorating his office suite. (Short answer: No, but it was a "different economic environment.")

Thain said he was "surprised" by his ouster at the hands of B of A CEO Ken Lewis, saying that results from the first 20 days of the merger, which went into effect January 1, were "very good."

He blamed Merrill's losses on positions the company held before he took over in 2007, and the larger market meltdown. "Over the course of the year I was at Merrill, I was constantly sheding assets," he said, referring to toxic mortgage assets. "We were in a position of owning very illiquid things that could not be sold and had to be marked down."

And he denied that Merrill's continued buying of mortgage assets into the fall were at the heart of the massive fourth quarter losses. "Did we continue to trade? Yes. Did we put on big risk positions ...? No... The vast majority of loses in the fourth quarter were from positions that had been there since I started."

As for the claim that Thain wasn't open with B of A about Merrill's losses, Thain said:
"They were seeing exactly the same info that we saw. We gave them complete access to everything we had."

Those billion dollar bonuses Thain signed off on? "If you dont pay your best people, you will destroy your franchise. Those best people can get jobs other places, they will leave."

And about that redecoration, Thain said it was a "very different economic environment." He added: "It is clear to me in today's world that it was a mistake. I apologize for spending that money on those things."

Asked by Bartiromo why he couldn't have left the office as it was when his predecessor as CEO, Stanley O'Neal, took off, Thain replied:

"His office was very different than the general decor of Merrill's offices. It would have been very difficult for me to use it in the form that it was in.

Watch the video of that exchange:

John Thain

You're So Thain: Ousted Ex-Merrill Chief Defends Record, Offers To Pay For Office Redecoration

Zachary Roth | January 26, 2009, 12:04PM

John Thain is fighting back.

The former Merrill Lynch CEO was ousted last week as a Bank of America exec after Merrill posted massive losses in the last quarter before its takeover by B of A. In December, Thain had approved billions of dollars in bonuses before the takeover went into effect. He also spent $1.2 million redecorating his office suite last year. (We catalogued our Top Ten Thain Moments here.)

Now CNBC has obtained a memo written by Thain to his former colleagues in which he defends his record, and offers to reimburse B of A for the redecorating spree.

Thain says that Merrill's 2008 bonuses totaled only 41 percent of 2007's, and that Bank of America was involved in the decision.

As for the fourth quarter losses, Thain calls them "very large and unfortunate" but adds that they "were incurred almost entirely on legacy positions and were due to market movements." In other words, not his fault.

That appears to run counter to the New York Times report that a substantial part of those losses came from Merrill's disastrous decision to continue buying mortgage assets into the fall, in the belief that the market had bottomed out.

Thain also says B of A knew about the losses as soon as Merrill did:

We were completely transparent with Bank of America. They learned about these losses when we did. The acting CFO of my businesses was Bank of America's former Chief Accounting Officer. They had daily access to our p&l, our positions and our marks. Our year end balance sheet target (which we more than met) was given to us by Bank of America's CFO.

Thain refers to "several topics that have been inaccurately reported in the press" but doesn't specify what the inaccuracies were.

CNBC is also reporting that in an exclusive interview, set to air at 4:15 today, Thain argued that the bonuses were necessary to retain top staffers.

The full memo follows after the jump...

Read more »

John Thain

Merrill Approved Dividend Payment To Stockholders Last November

Zachary Roth | January 23, 2009, 5:05PM

It turns out the billions in dollars in bonuses paid out by Merrill Lynch even as its new owner, Bank of America, was lobbying for more bailout money weren't the only questionable payments the firm made late last year.

BusinessWeek reports:

On Nov. 13, just three weeks before Merrill shareholders voted to approve the merger with BofA, Merrill's former board approved the payment of 35 cent-a-share dividend to all common stockholders. The payout drained another $565 million from Merrill's coffers at a time when the firm should have been building up cash, instead of spreading it around.

Now sure, one could argue that if Merrill had slashed the dividend to the bone, the brokerage's stockholders may not have voted for the merger with BofA. But Merrill's dividend payout came just weeks after Bofa announced on Oct. 6 it was slashing its dividend in half to 32 cents-a-share--a move the bank said would save it some $1.4 billion in cash each quarter. (The bank has since cut the dividend to a penny-a-share).

The magazine also offers an important, if obvious-when-you-think-about-it corrective to the fast-emerging narrative that Bank of America knew nothing about Merrill's huge fourth quarter losses until mid December (and had no reason to know any sooner.)

Says Bizweek:

Anyone with inside knowledge of Merrill's investment portfolio could have seen that the brokerage's investments in corporate loans and commercial real estate-related securities would all take a hit in the fourth-quarter. And that includes Thain & Co., as well as Lewis' team at BofA, which was conducting its due diligence on Merrill at the time.

No one comes out of this looking good.

Wall Street

The Thundering Herd Laid Low: A Merrill Lynch Timeline

Chris Black | January 23, 2009, 3:18PM

Key moments in the Merrill Lynch saga over the last year:

December 1, 2007 - John Thain begins his tenure as Merrill Lynch CEO, replacing Stanley O'Neal who had resigned after the company announced billion-dollar losses stemming form its mortgage investments.

September 15, 2008 - A deal is announced for Bank of America to buy Merrill, which, for the previous four quarters, has posted losses totaling $17 billion. The deal comes amid a broader financial crisis connected to the mortgage meltdown: that same day, Lehman Brothers declares the largest bankruptcy in American history, and the following day, American International Group is essentially nationalized.

October 14, 2008 - Bank of America gets $25 billion in bailout funds.

December 5, 2008 - Merrill and Bank of America shareholders vote to approve the takeover.

December 8, 2008 - Merrill's compensation committee approves payouts to staff totaling $3-4 billion, at least a month ahead of schedule. Some at B of A complain that the accelerated schedule was an effort to ensure that B of A could not cut the payments when it took over January 1.

Days later - Bank of America learns that Merrill's fourth-quarter losses were greater than expected. B of A begins lobbying the federal government for more TARP money to ease the takeover.

December 29, 2008 - Merrill bonuses paid, in the nick of time (sub. req.).

January 1, 2009 - Bank of America officially takes control of Merrill. It will later rename its brokerage division Merrill Lynch Wealth Management.

January 16, 2009 - Treasury announces it will give Bank of America another $20 billion in TARP money, to help it absorb the larger-than-expected Merrill losses.

January 16, 2009 - Bank of America reports a fourth quarter loss of $1.79 billion, including a $15.3 billion loss (sub. req.) posted by Merrill Lynch for the same quarter.

John Thain

John Thain's Top Ten Greatest Moments

Zachary Roth | January 23, 2009, 2:55PM

If there's one corporate honcho who's emerging as the poster boy for all the varied Wall Street sins that the financial crisis has exposed -- not just greed, but callousness, obliviousness and general incompetence -- its Merrill Lynch's former CEO John Thain.

Over the last few days, the revelations about Thain's mismanagement of Merrill have been coming thick and fast -- culminating with his ouster yesterday as an executive at Bank of America, which bought Merrill at the height of the financial crisis last September.

Thain, a top John McCain backer who was tipped as a candidate for a White House post had the Arizona senator won the presidency -- has amassed quite a record in his short time at Merrill. Lavish personal spending, absentee leadership, bonuses for billions in losses -- it's almost been too much to keep track of.

So we've created a handy rundown of Thain's top 10 greatest moments over the last turbulent year. (You might also want to check out our Merrill Lynch timeline to brush up on how Thain's missteps fit in with the larger story of his firm's collapse.)

In rough chronological order, here are John Thain's top 10 greatest moments:

1. The Great Redecoration

Thain pays $1.2 million last year -- well after Merrill's huge losses on mortgage assets are known -- to refurbish his office suite. That includes $800,000 to interior designer Michael S. Smith, who's also redecorating the White House for the Obama family. (More Smith clients: Steven Spielberg, Michelle Pfieffer, and Cindy Crawford.)

Other expenses from the big redecorating project, all signed off on by Thain personally:

Area Rug: $87,784
Mahogany Pedestal Table: $25,713
19th Century Credenza: $68,179
Pendant Light Furniture: $19,751
4 Pairs of Curtains: $28,091
Pair of Guest Chairs: $87,784
George IV Chair: $18,468
6 Wall Sconces: $2,741
Parchment Waste Can: $1,405
Roman Shade Fabric: $10,967
Roman Shades: $7,315
Coffee Table: $5,852
Commode on Legs: $35,115

At this time, reports CNBC's Charlie Gasparino on The Daily Beast, Thain is "preaching the virtues of cost control, telling employees to reduce expenses including car services, entertainment and travel".

2. The Unfortunate Chair Incident

During a summer 2008 meeting with his top financial officer, Thain, angry about Merrill's huge mortgage-asset-related losses, hurls a chair against the wall, shattering a nearby glass panel.

3. Just Can't Quit Those Mortgage Assets

Even after Thain has been forced to beg Bank of America to save his desperate firm, his traders, thinking the market has "bottomed out", keep trading risky mortgage securities. Those, of course, are the very assets that had helped bring on the massive losses, mostly incurred before Thain's tenure, that made the Bank of America deal necessary.

4. The Bonus Fiasco

In October, Thain suggests he should receive a $30-$40 million bonus. By December, he compromises: $10 million. After a blizzard of public criticism, including from New York Attorney General Andrew Cuomo and Senate Majority Leader Harry Reid, he drops his request for any bonus. Later, he denies having asked for one at all.

5. The In-Retrospect-Ill-Advised Ski Trip

In mid December, Bank of America CEO Kenneth Lewis learns that Merrill's fourth quarter losses will be much larger than expected. Lewis gets the bad news not from Thain himself, but from the transition team handling the merger -- perhaps because, after the losses surface, Thain takes off for his ski house in Vail. (A "person familiar with the matter" tells the Journal, hilariously, that Thain was "working and available" while in Vail.)

6. The Failure To Impress The New Boss

Asked by Lewis about the new losses, which will officially come to $15.3 billion, Thain "didn't really have a good grasp of what was going on,", one source tells the Wall Street Journal. Ultimately, the federal government will in January give Bank of American $20 billion -- on top of the bailout funds it had already gotten -- to help it absorb the Merrill losses.

7. The Troubling Lack Of Candor

Under Thain, Merrill appears not have been as forthcoming as it might have been with its new owner about the state of its books. A Bank of America spokesman tells the Journal today: "Their fourth quarter was way beyond anything they said would happen." Even worse, Thain may also have been less than straight with Merrill itself. He doesn't fully inform his own board that, thanks to Merrill's losses, the federal government might need to step in to ensure the B of A deal goes through, according to complaints from board members.

8. The Other Bonus Fiasco

Merrill, with Thain still in charge, accelerates its yearly bonus payments, doling out an estimated $3-4 billion in bonuses before January 1, 2009, when Bank of America will take control. Some at B of A believe the expedited schedule is designed to avoid giving B of A a chance to cut those payments. New York AG Cuomo is now reportedly investigating.

9. The In-Retrospect-Ill-Advised Planned Trip to Davos

Thain plans a trip to Davos to attend the World Economic Forum next week -- even though Bank of America has discouraged the idea.

10. The Final Act

Thain pays $483,320 for 84,600 shares of Bank of America. The following day, he's fired.

Well, at least now he can make it to Davos.

AIG

Merrill Traders To Mortgage Assets: I Wish I Knew How To Quit You

Zachary Roth | January 23, 2009, 10:10AM

Yesterday we told you about how Merrill Lynch paid out billions in bonuses to staff even as its new owner, Bank of America, was begging the government for another bailout to help it digest Merrill's massive losses on mortgage assets.

And today, buried in a New York Times story about the downfall of former Merrill CEO John Thain -- whose ouster as a Bank of America exec was announced yesterday -- is an intriguing nugget that suggests just how attached Merrill was to those toxic assets.

Reports the Times:

At a news conference announcing the merger, Mr. Lewis praised Mr. Thain. Mr. Lewis said Mr. Thain's new role had not been decided, adding: "That's a credit to John. It usually does not happen that way. And it was never about him, it was always about the deal."

But after Merrill appeared to be safely in Bank of America's arms, Merrill's traders began buying risky mortgage assets, thinking that the market had bottomed out, according to two people familiar with the firm's trading. Merrill also began to run up losses on equity derivatives and other instruments, they said.

That news conference to announce the "merger" took place September 15th.

So Merrill traders resumed buying mortgage assets after the crisis in the housing market was already abundantly clear. After the government had taken over the mortgage lenders Fannie and Freddie. After Lehman Brothers had announced it was filing for bankruptcy. After the US government had effectively taken over AIG. Above all, after Merrill itself had been bought by Bank of America, with help from $25 billion of government money.

And all those developments triggered by hundreds of billions of dollars in losses thanks to investments in bad mortgage assets.

And here's the larger point: Merrill's massive fourth quarter losses, which prompted B of A to seek a second government bailout, weren't caused only by investments made before the collapse of the mortgage market, and the extent of the financial crisis, became apparent. Rather, they were in part the result of continuing to buy bad mortgage assets into the fall.

No one would trust me to invest so much as the contents of their piggy bank. But I'd like to think that, by mid-September, even I'd have known that mortgage assets might not be the best bet.

Greedy and dumb. That's a toxic combination.

Bailout

Merrill Paid Billions In Bonuses, As New Owner Sought More Bailout Dollars

Zachary Roth | January 22, 2009, 4:40PM

It's got stiff competition, but Merrill Lynch may have just wrapped up the prize for the investment bank that best exemplifies Gordon Gekko's famed articulation of the Wall Street creed: "Greed is good."

The Financial Times reports (sub. req.) today that in early December, Merrill, which months earlier had agreed to be bought -- rescued, really -- by Bank of America, decided to pay out $3-4 billions in bonuses.

The bonuses were handed out on an accelerated schedule -- at least a month earlier than in previous years. And they were agreed to just days before Bank of America, realizing how much in toxic assets Merrill had on its books, went to the federal government asking for more taxpayer money to help it digest Merrill -- money that was eventually forthcoming.

One equity analyst told MarketWatch that the move, apparently initiated by then-Merrill CEO John Thain, was "simply outrageous and one of the more extreme examples of poor corporate governance we can think of."

You also might remember that Thain -- who today resigned as a Bank of America exec, amid criticism -- had originally asked the firm's compensation committee for a $10 million bonus for himself, as part of that round of payouts, though the committee at least had the good sense to decline the request.

And the Wall Street Journal now reports that New York Attorney General Andrew Cuomo is investigating the payouts -- part of a broader probe of executive compensation among Wall Street firms.

Just to get a clear sense of how this all went down, and what a boondoggle this looks to have been for Merrill, it's worth looking at a timeline of events:

- 9/14/08: Bank of America buys Merrill. Over the previous four quarters, Merrill had posted losses of more than $17 billion.

- 10/14/08: Bank of America gets $25 billion in bailout funds, largely in order to help it take on Merrill's losses.

- Fall 08: A proposal is made to Merrill's compensation committee that Thain receive a $10 million bonus.

- 12/05/08 - Merrill and Bank of America shareholders vote to approve the takeover.

- 12/08/08 - Merrill's compensation committee declines to approve the proposal on Thain's bonus, but nonetheless approves payouts to staff totaling $3-4 billion.

- Days later: Bank of America learns that Merrill's fourth-quarter losses were greater than expected. B of A begins lobbying the federal government for more TARP money to ease the takeover.

- 12/29/08 - Merrill pays bonuses paid, at least a month ahead of the usual schedule.

- 1/16/09 Treasury says it will give Bank of America another $20 billion in TARP money, to help it absorb the larger-than-expected Merrill losses.

- 1/16/09: Merrill reports a $15.3 billion fourth quarter loss.

The payouts are made even more shocking by the fact that, as a TPM reader pointed out this afternoon, in the current climate, staffers hardly require massive incentives to stay on -- which is usually the justification given for lavish bonuses. After all, it's not as if they're fighting off job offers from other thriving competitors.

Something Tim Geithner and co. might want to keep in mind the next time a failing bank comes begging for more taxpayer money.

John Thain

On Second Thought, Merrill CEO Will Forgo Yearly Bonus

Zachary Roth | December 9, 2008, 9:11AM

That didn't take long.

Yesterday, as we noted, the Wall Street Journal reported that Merrill Lynch CEO John Thain was seeking an annual bonus of as much as $10 million -- after seeing his company lose over $11 billion this year.

New York Attorney General Andrew Cuomo and Senate Majority Leader Harry Reid were both quick to express their outrage, noting that Bank of America, which has completed a deal to buy Merrill, received $15 billion from the bailout fund this fall. And Merrill's board appeared reluctant to go along.

And sure enough, at the company's board meeting yesterday afternoon, Thain announced that he, along with other senior execs, would forgo bonuses this year, "given current economic and market conditions."

Given the level of outrage that Thain's request had provoked so quickly, the board's apparent opposition, and the broader public mood against excessive CEO pay, Thain may have seen the writing on the wall.

And given that he got a $15 million bonus when he joined the firm last fall, we think he should be fine.

Bailout

Reid, Cuomo, Blast Merrill CEO's Request for $10-Million Bonus

Zachary Roth | December 8, 2008, 2:47PM

The news that John Thain, the CEO of Merrill Lynch, has requested a $10 million bonus isn't sitting well with some prominent political figures.

A statement from Senate Majority Leader Harry Reid notes that in October, Merrill received $10 billion in bailout money. Reid then declares:

The TARP program, from which Merrill Lynch has taken billions of taxpayer dollars, was designed explicitly to limit executive compensation, bonuses and golden parachutes. While American families struggle to keep their jobs and their homes, I question the chutzpah of asking for a $10 million taxpayer-subsidized bonus. Americans deciding which bills to pay this month just to make ends meet do not want their hard-earned money even indirectly spent rewarding executives from banks that are largely responsible for the economic crisis. I sincerely hope that Merrill Lynch rejects this request.

Meanwhile, New York Attorney General Andrew Cuomo, who is conducting an investigation of executive pay on Wall Street, has written a letter to Merrill board members that makes similar points. Cuomo writes:

Paying executives at Merrill millions each in "performance" bonuses in this context [of a taxpayer-funded bailout of Wall street firms] would be oxymoronic to say the least and certainly a thumb in the eye to taxpayers. Enough is enough.

Bailout

Merrill Chief Wants $10-Million Bonus For Presiding Over $11-Billion Loss

Zachary Roth | December 8, 2008, 1:06PM

Talk about tone deaf!

Merrill Lynch chief John Thain wants a bonus of as much as $10 million, reports (sub. req.) the Wall Street Journal.

Merrill's compensation committee is, not surprisingly, said to be objecting, pointing out among other things that, due to the dire economic situation, other firms like Goldman Sachs -- which did better than Merrill -- are forgoing bonuses this year.

Merrill has lost almost $12 billion this year, and is about to be taken over by Bank of America. Its shares have fallen fom $50 when Thain took over late last year to $13.04 at close of trading Friday.

It looks like Thain -- who was a major fundraiser for John McCain's campaign and was described by USA Today as a member of McCain's "team" -- is a practitioner of the bargaining strategy in which you begin with a maximalist offer as a starting point for negotiation:

A few months ago, when the board began seriously considering 2008 bonuses, a proposal was presented to the compensation committee by Merrill that Mr. Thain should be paid in excess of $30 million, according to people familiar with the matter. That number has since come down in recent talks with various board members and Mr. Thain has recently indicated to committee members that $5 million to $10 million is more reasonable.

The Journal notes some evidence in Thain's favor:

Mr. Thain's decision to sell Merrill likely salvaged billions of dollars for shareholders and saved a huge number of jobs at the firm, even though thousands of positions will be eliminated following the takeover.

Mr. Thain's quick moves won him respect on Wall Street, especially in contrast to top executives at Lehman Brothers Holdings Inc. and Bear Stearns.

Still, to Americans hit by the mortgage crisis that Merrill and other Wall Street firms helped set the stage for, those points may not carry much weight.