Wednesday, October 14, 2009
Nay, big spender: Merrill Lynch chief departs
ANTIQUE furniture, a loss of $US15 billion ($23 billion) and an unacceptably lavish trip to a Swiss ski resort. The 30-year Wall Street career of former Merrill Lynch boss John Thain came crashing to an end late last week as his new employer, Bank of America, ran out of patience.
Nicknamed "SuperThain" for his bespectacled Clark Kent looks, Thain was once known as a turnaround expert with a deft hand for fixing troubled financial institutions. But he lost his job in a meeting which lasted barely 15 minutes on Thursday morning with Bank of America's chief executive, Kenneth Lewis.
"Ken went to see him, they had a short meeting and they mutually decided things weren't working out," a Bank of America spokesman said.
Ostensibly, the reason for Thain's departure was that Merrill Lynch has been losing money hand-over-fist since Bank of America agreed to buy it in September. In the final quarter of the year, Merrill Lynch lost an eye-watering $US15.3 billion on exposure to toxic derivatives and bad mortgages.
Bank of America bosses privately complain that Thain left them in the dark about the scale of the outflow - as the situation deteriorated in December, he went on holiday to the mountain resort of Vail. The banking group might have pulled out of its purchase of Merrill Lynch had it not been urged to press on by the US Treasury, which, fearing another Wall Street bankruptcy, hurriedly stumped up $US20 billion of aid.
But Thain's personal style engendered particular irritation. In a carefully timed leak, it emerged this week that Thain, 58, spent $US1.22 million of Merrill Lynch's money renovating his office in New York a year ago. He signed off on purchases including an $US87,784 rug, a $US35,115 commode and a pair of curtains costing $US28,091. Even the waste paper bin cost $US1405.
In any other year, such expenses would barely have prompted a raised eyebrow among Wall Street banks where wood panelling, tropical fish tanks and oil paintings are commonplace. But Thain misjudged the climate.
"Redecorating your office at this expense while letting go of employees is not a good thing," said Stuart Plesser, a banking analyst at Standard & Poor's equity research.
Office furnishings were not the only example of Thain's reluctance to tighten his belt. He was planning to lead a Merrill Lynch delegation to the World Economic Forum's annual summit in Davos at the end of this month and his plans irritated Bank of America chiefs.
Bank of America plans a single cocktail reception for opinion leaders in Davos but the Merrill Lynch team intended to show off in style. A banking industry source said: "Signals were sent to John that what he was planning was not appropriate. They were going to take over a hotel. They were going to do a lot of press with multiple parties."
With Wall Street banks struggling, Thain even had the audacity to lobby for a bonus. He let it be known to Merrill Lynch's board late last year that he felt he deserved $US10 million for successfully selling the business, thus protecting it from the fate of Lehman Brothers and Bear Stearns. When his peers at rivals such as Goldman Sachs declared they were renouncing personal payouts, Thain backed down.
"The collective weight of things coming out of the office, the trips, the bonus, borders on indefensible," said Nancy Bush, an analyst at NAB Research.
It is a shattering end for a man who spent 24 years at Goldman Sachs before moving to run the New York Stock Exchange, where he won plaudits for trimming costs and smoothing the process towards electronic trading.
For many on Wall Street, the lingering question is what might happen to Bank of America next. Merrill Lynch's brand and brokerage network are valuable assets but the firm's investment banking arm is proving a huge liability. Bank of America's own boss will face his board next week with doubts mounting over his handling of the takeover.
Critics suggest Lewis failed to negotiate sufficiently hard when he agreed to buy Merrill Lynch in an all-stock deal which was worth nearly $US50 billion before share prices sank. Others, such as JPMorgan's Jamie Dimon, have proved more ruthless in snapping up troubled firms.
"It is possible to do good deals in this environment," said Robert Bruner, dean of the University of Virginia's Darden School of Business. "It looks like JPMorgan, which has acquired Bear Stearns and Washington Mutual, will stay on its feet and remain healthy."
Many wonder whether Lewis will meet the same fate as Thain. Bank of America's shares have fallen by 78 per cent since September.