Some readers have suggested that while ex-Merrill CEO John Thain’s actions post the agreement to buy his firm were questionable, his ouster was an effort to divert blame and attention for the turkey deal from BofA CEO Ken Lewis.
If Thain, as Lewis charged, ducked direct questions about Merrill’s deteriorating financial condition, or worse, was misleading (how could he have not known?) that alone would be a hanging offense. This Financial Times report says that BofA got daily p&l reports starting in November, but notes it is “unclear” whether they showed daily trading gains and losses.
Regardless, the flap over the accelerated bonus payments is not going away, and the continued embarrassment is sure to dog Lewis.
From the Financial Times:
Bank of America played a role in Merrill Lynch’s controversial decision to pay $4bn in bonuses in December…
BofA has said that the payment of $4bn in compensation in a fourth quarter in which Merrill racked up $15bn in losses was sanctioned by John Thain, Merrill’s chief executive.
Ken Lewis, BofA’s embattled chief executive, ousted Mr Thain on Thursday after news of the bonus payments appeared in the Financial Times. BofA told the FT last week that Mr Thain had made the decision to pay bonuses in December instead of January and it had been “informed” of the move. The bank said Merrill was an independent company until the deal closed on January 1.
However, a person familiar with Mr Thain’s actions said the ousted chief had at least two conversations with BofA’s chief administrative officer, J. Steele Alphin, one of the bank’s most senior executives, before a December 8 board meeting at which Merrill’s bonus payments were approved.
This person said Mr Alphin recommended, and Mr Thain accepted, a proposal to change Merrill’s incentive compensation mix – 60 per cent cash and 40 per cent stock – to conform with BofA’s system of 70 per cent cash and 30 per cent stock. The stock portion of the payouts was made January 2, the day after the deal closed, in BofA stock.
In addition, Andrea Smith, a senior executive in BofA’s human resource department, had been seconded to Merrill since September, according to people close to the situation.
BofA on Sunday confirmed there were conversations about the bonus payments prior to the pay-outs: “We never said we didn’t talk with them about it. But, in the end, it was their decision and they informed us of it.”
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At the risk of sounding the conspiracy bell, it was fairly obvious from the initial announcement of the bonuses that BofA likely leaked the information itself to demonise Mssr. Thain and make its case for add'l federal money more convincing. In many years of M&A, I never once saw a company try to pay out a large bonus pool right before acquisition. It violates a number of covenants in the merger agreement to do so without the acquiescence of the acquiring company. Lewis knew it was happening, and needed a fall guy as an excuse.
This is an irritating ploy that I see all the time: “X was informed about Y before disaster Y happened.” WTF does that mean? If “The CIA knew 9/11 was going to happen” means, “Useless subordinate A wrote one cover-his-ass memo about tail risk Z, out of one million memos produced that day”, who the hell cares?
If you are a mid level manager at Bank of America, and you are informed by one of the top guns at Merrill that they will pay themselves $4 billion, are you able to call them out on it? Maybe, but the relative risk for you would be very high. John Thain had a direct line to Hank Paulson and he’s known to be a ruthless, vindictive son of a bitch.
Obviously there was boiling resentment at the lower ranks of BofA, which eventually did make its way up the chain of command, after Merrill had already twisted the knife and run out the door with the money.
Within a 50,000 ++ company, information does not travel at light speed. It travels at a crawl. Ken Lewis would have been the only person able to stand up to Thain AFTER the Obama Administration transition (let alone before, when Thain’s Goldman Sachs mafiosi wielded total power at Treasury.)
Ken Lewis probably trusted Thain to do the right thing and not steal a ton of BofA money after saddling BofA with a grotesque loss, considering that Merrill had hijacked the HR department during the merger.
The question isn’t, “Did Bank of America know?” The question is, “Did someone at Bank of America with authority comparable to Thain know?”
You folks are all INCREDIBLY NAIVE.
BOFA knew exactly what a pile of sh!t ML had on its books. Same with Countrywide.
BOFA bought these pieces of sh!t on purpose.
BOFA’s intention the entire time was to become the largest piece of sh!t in the sewer system.
WHY? To get the most possible amount of taxpayer money possible, so that after all is said and done, the executives get out of all this with huge paydays and ultimately BOFA comes out the other end of the pipe better positioned than had it not bought these pieces of sh!t called ML and Countrywide.
The same is true of every single bank merger of 2008.
I wonder what Geithner, Summers, Rubin et al. were aware of?
too bad no one will ever ask those questions of them.
In other words, you folks are all falling for the trap. You’re all fools.
You, like every poor taxpaying citizen of the USA, have been bamboozled by BOFA, ML, Countrywide, etc. etc. etc.
Once they knew their inevitable fate (government bailout) they all instantly started behaving as irresponsible as possible because that is to their advantage in such a scenario. Get it?
Whoever collects the most garbage under one roof becomes, after default/bailout-receivership-regurgitation, the biggest remaining bank in the USA.
When the government is handing taxpayer money to anyone with debt, YOU WANT DEBT. You even FAKE DEBT. The more debt you have, the faster and more certain your taxpayer money is coming.
BE ANGRY. Stop trying to figure out who knew what — THEY ALL KNEW EVERYTHING. They’re trying to distract you with these petty crimes. The real crime is the bailouts. TRILLIONS before its over. MANY TRILLIONS. OF UNBORN CITIZENS’ MONEY.
Anon of 8:37 PM,
I have to disagree with your characterization. The chief administrative officer is NOT a middle level manager. He is top brass. At most companies, the CAO is the number 3 guy.
see how they run like pigs from a gun
see how they snide – i’m crying
these guys are see eee friggin ohs
they are sucking the life out of
the economy – they will walk
bastards
Good news. I just won a bet about BoA and the bonuses, sooner than I thought. Anon of 8:01 re covenants in merger agreements is right on.
Every time I think I’m prepared for the institutionalized corruption of these maggots something comes up to defoliate my virginity all over again.
Bye bye Mr. Alphin.
I think Mr. Lewis may “retire”.
Once they knew their inevitable fate (government bailout) they all instantly started behaving as irresponsible as possible because that is to their advantage in such a scenario. Get it?
We’re still talking about moral hazard in an abstract, academic sense. Either we plainly do not get it, or we plainly do get it, and I sincerely hope it’s the former and suspect, as do you, it’s the latter.
The willingness of administrations, both outgoing and incoming, to use failed economic theories as crossfire for their own policy preferences indicates to me that moral hazard exists across all top strata in our society.
Until we return to the prime patriotic value of country before self, this bullshit will continue. And I saw some mighty fine bullshit today, and some really wonderful people. The topsoil of good folks is still there to rebuild a nation upon, and we’ve got some time before it erodes. In fact, if you watch the sun set over the Rockies, it looks like all the time in the world.
It will be fun to watch Thain and Lewis be hanged in a public square.
Even poor people can afford rope.
You dream, this people will loot again with the help of franks, pelosies, reeds and dodds. You will hold the bag.
People need to understand that the rich of the world are in control and Lewis and Thain are bought shills (very well paid) for the real fascists.
I wonder whether Thain did well for himself by leaving NYSE and accepting a job at Merrill? Was it the right move for Thain personally or would he have been better off at NYSE? I think Thain felt that he had sacrificed a lot in order to help Merrill, and that he deserved a reward. He wasn’t at Merrill when they acquired all the bad assets. He came to resolve the situation for Merrill and he accomplished that.
It was the BofA management who made all the wrong decisions.
But most likely Anon of 9:10 PM is right…it’s all about the bailouts and fine-grained analysis is useless.
Lewis is about the worst kind of idiot we have known to man on wall street. He thought Mozilo would enjoy his $83 million dollar parachute upon the sale to BAC on Jan 10, 2008. He thought $29 was a good price for MER when it was trading at $18.
Lewis is dog dirt, and as much as I hate Thain for his duplicity throughout 2008 and at the beginning of 2009, Lewis gets what he deserves for being so taken in. And the govt gets what they deserve for being so taken in. And the taxpayers if they don’t revolt get what they deserve for being so taken in. See, its a chain reaction. We all get something out of this even if it isn’t what we wanted.
But give me a few hangings and we might all feel a bit better.
ndk,
Sometimes your brilliance is one of the few treasures left to us. Here is one of your goldmines:
“The willingness of administrations, both outgoing and incoming, to use failed economic theories as crossfire for their own policy preferences indicates to me that moral hazard exists across all top strata in our society.
Until we return to the prime patriotic value of country before self, this bullshit will continue. And I saw some mighty fine bullshit today, and some really wonderful people. The topsoil of good folks is still there to rebuild a nation upon, and we’ve got some time before it erodes. In fact, if you watch the sun set over the Rockies, it looks like all the time in the world.”
hi yves. just a heads up. i have been reading you for about 13 months now. rarely posted. just read.
you might start getting some referrals from me. i linked to about 4 of your posts in tomorrow’s round-up of bailout links that wil appear in the morning.
thanks for all you do,
db
Would it be possible to compile a list of people who received Merrill bonuses so that they can be publicly shamed?
How would one go about compiling such a list?
Why is BOFA the all conspiring party in this mess. The Americans have only themselves to blame, this was obviously a shot gun marriage orchestrated by the treasury who panicked after Lehman collapsed. As for Thain he represents most of the high financier class that has come to dominate wall street (greedy and no shame). I would expect nationalisation of BOfa by the end of the year, american tax payers would not want to subsidise banks without any upside. The sad thing about the American financial crisis compared to the Japanese is that American bankers have absolutely no shame, even in the end they still enrich themselves.
Ken and Thain need to be arrested, charged, convicted, and sent to jail. Mozillo too.