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Thain Resigns From BofA Amid Criticism
By SUSANNE CRAIG and DAN FITZPATRICK
Less than four months after being hailed as a hero for averting the potential collapse of Merrill Lynch & Co., John Thain was pushed out of Bank of AmericaCorp. by his new boss, who was angered by Mr. Thain's handling of stunning losses at Merrill.
WSJ's Deal Journal lead writer Heidi Moore says the Bank of America-Merrill Lynch deal is setting a record for merger-integration disaster.
Bank of America Chairman and Chief Executive Kenneth Lewis, whose grip on the top job at the third-largest U.S. bank by stock-market value has been questioned as a result of Merrill's woes, dismissed Mr. Thain on Thursday morning in a meeting that lasted less than 15 minutes, people familiar with the matter said.
After flying to New York for the meeting in Mr. Thain's office at Merrill's former headquarters, Mr. Lewis asked Mr. Thain to resign. Merrill's former chairman and CEO agreed; it was clear he had no choice. "Ken would not have left that meeting without a resignation," said one person familiar with Mr. Lewis's thinking.
Mr. Thain had lost Mr. Lewis's confidence, said a person familiar with the situation, following a series of events in early December. It started when Mr. Lewis learned of mounting fourth-quarter losses at Merrill from a transition team handling the merger, rather than from Mr. Thain himself.
When Mr. Lewis asked Mr. Thain what happened, the Bank of America CEO didn't get a "good explanation for what was happening and why," this person said. Not only did Mr. Thain not appear concerned about the losses, but he "didn't really have a good grasp of what was going on," this person added.
The Bank of America CEO also came to the conclusion that Mr. Thain had exercised "poor judgment" on a number of fronts. He lost key people in the days after the merger closed Jan. 1, including Merrill President Gregory Fleming and wealth-management chief Robert McCann. A number of senior bankers, including Andrea Orcel and Fares Noujam, are also considering leaving.
Mr. Thain also left for a vacation in Vail, Colo., after the losses came to light, accelerated bonus payments at Merrill so they could be collected before the end of the year and scheduled a trip this week to attend the World Economic Forum in Davos, Switzerland, even though Bank of America had signaled that such a trip wasn't a good idea, this person said. Bank of America chief risk officer Amy Woods Brinkley usually makes that trip but the company decided not to send her this year.
Vitriol between the Bank of America and Merrill camps also stemmed from the fact that Merrill had paid out bonuses much earlier than expected. A person familiar with Merrill's bonus scheme said that executives typically are told what their bonus will be by the second week of January and the payments are made in the second half of the month. Some people inside Bank of America believe that Merrill accelerated the payouts to avoid having them cut amid a much-leaner plan at Bank of America.
Bank of America CEO Ken Lewis, right, and John Thain shake hands at a press conference Sept. 15 in which the pair discussed BofA's recent $50 billion takeover of Merrill Lynch.
Some Merrill board members have complained that Mr. Thain didn't fully inform them that mounting losses at the bank threatened to derail the deal last month, until the federal government agreed to step in with $20 billion in additional capital and a sharing of losses on $118 billion in assets.
At the center of the upheaval is the unexpected $15.31 billion fourth-quarter loss at Merrill. The loss was a surprise for a number of reasons, including the fact that Wall Street had believed that Merrill's biggest problem was losses tied to debt pools underpinned by subprime securities. But in a securities filing this week, Merrill detailed a much wider array of losses, including a commercial-property write-down totalling $1.13 billion, a leveraged loan write-down of $1.9 billion and losses tied to credit bets totalling $3.2 billion.
The recent missteps are simply the latest in a string of decisions Mr. Thain has made since his arrival at Merrill that have proven costly to the 53-year-old executive. He was heralded as the dream candidate when he became chief executive and chairman of Merrill when he landed there in late 2007.
The Merrill that Mr. Thain inherited was weighed down by billions of dollars in soured mortgages and he was untainted by the growing crisis that had already cost some CEOs their jobs, including his predecessor, Stanley O'Neal.
Mr. Thain was dubbed Mr. Fix It. The level-headed Massachusetts Institute of Technology engineering graduate had a Harvard MBA and had served as president of Goldman Sachs.
Within weeks of his arrival, he raised billions of dollars to cover Merrill's escalating losses. But like many other Wall Street chiefs, Mr. Thain underestimated the magnitude of the storm to come. "This problem is not a zero, but it is for the most part behind us," Mr. Thain said in an interview with The Wall Street Journal in mid-January 2008.
In one of his first missteps as CEO, Mr. Thain, pressed for capital and optimistic the market would soon turn, cut deals with some early investors in Merrill that would prove costly to Merrill shareholders. Mr. Thain promised a number of shareholders who invested in Merrill in December 2007 and January 2008 that if the bank issued additional common stock at a lower price within a year, the firm would compensate them. Within months, the firm had to raise more cash at $25 a share. Merrill issued additional shares to pay off its earlier investors, diluting its common shares by 39%. The dilution essentially cost shareholders about $5 billion.
At the same time, Mr. Thain made some key hiring decisions that proved divisive. Mr. Thain took over from Stanley O'Neal and inherited Mr. O'Neal's executive team. A number of executives left, but a handful, notably Messrs. Fleming and McCann, stayed. Mr. Fleming, an investment banker, was named president and Mr. McCann continued to oversee the firm's powerful retail brokerage network.
Mr. Thain also offered Goldman colleagues Peter Kraus and Mr. Montag multimillion-dollar packages to join the financially strapped Merrill, offending many people at the firm, including others on the executive committee. Messrs. McCann and Fleming, for instance, went without bonuses in 2007 and 2008.
Mr. Montag, who started in August as Merrill's global head of sales and trading, was given a guaranteed payout of $39.4 million for 2008. Mr. Kraus, who joined Merrill in September and left in late December, received an exit payment triggered by Bank of America's acquisition of Merrill of $25 million, according to people familiar with the matter.
Mr. Fleming's departure created unrest in the firm's investment banking department and a number of senior banker, including Andrea Orcel, the head of Merrill Lynch International, are considering leaving.
Tensions rose in December when Mr. Thain's behind-scenes-lobbying for a bonus spilled out in public. Most Wall Street CEOs, under fire for mounting mortgage losses, went without bonuses in 2008. But Mr. Thain, arguing he helped repair Merrill and engineered the sale of the firm to Bank of America, for months lobbied his board's compensation committee for a multimillion-dollar payment. Once his efforts became public, he came under fire. In the end he asked for no bonus and was awarded nothing.
Before arriving at Merrill, Mr. Thain merged the centuries-old private New York Stock Exchange with a publicly traded company that specialized in computerized trading. He also merged the Big Board with one of Europe's largest exchange operators to give the company exposure to faster-growing derivatives products and international markets.
But Mr. Thain left before the new company, NYSE Euronext, could gather momentum. Amid a toughening market and the challenges with integrating the two companies, NYSE Euronext stock has fallen more than 75% since the beginning of 2007, compared with a 65% fall at rival exchange operator CME Groupand a 32% decline in shares of Nasdaq OMX GroupInc.
"There are some who think he left his successor holding the bag," at NYSE Euronext, says Richard Repetto, an analyst with Sandler O'Neill. "But he did turn the ship and orchestrate some dramatic changes."
In Davos, Mr. Thain was slated to speak Jan. 30 on a high-powered panel titled, "Scenarios for the Future of the Global Financial System." Among the panel's topics: "The demise of independent investment banks," according to the World Economic Forum, which organizes the annual event.
Mr. Lewis is also under fire for his handling of the Merrill situation.
Shareholders are asking why Mr. Lewis didn't discover some of the troubles at Merrill prior to the Sept. 15 deal announcement, and why he didn't disclose the problems to shareholders before the merger closed Jan. 1.
"He and the board acted imprudently," said Richard Finger, a partner in Houston-based Finger Interests Number One Ltd., which owns more than 1 million shares.
Finger Interests filed a suit Thursday in federal court, arguing that the bank and its directors failed to disclose "material" information to shareholders. Mr. Finger added that Mr. Lewis should give up his title as chairman so the board can become more "independent."
Bank of America's board is scheduled to meet next week in Charlotte, but a person familiar with the board's deliberations said Mr. Lewis's job isn't in danger, nor is his title as chairman. Bank of America's board, this person said, was informed about Merrill's larger-than-expected losses shortly after Mr. Lewis knew about them.
—Aaron Lucchetti and Carrick Mollenkamp contributed to this article.
Write to Susanne Craig at susanne.craig@wsj.com and Dan Fitzpatrick at dan.fitzpatrick@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
Thain Resigns From BofA Amid Criticism
By SUSANNE CRAIG and DAN FITZPATRICK
Less than four months after being hailed as a hero for averting the potential collapse of Merrill Lynch & Co., John Thain was pushed out of Bank of AmericaCorp. by his new boss, who was angered by Mr. Thain's handling of stunning losses at Merrill.
WSJ's Deal Journal lead writer Heidi Moore says the Bank of America-Merrill Lynch deal is setting a record for merger-integration disaster.
Bank of America Chairman and Chief Executive Kenneth Lewis, whose grip on the top job at the third-largest U.S. bank by stock-market value has been questioned as a result of Merrill's woes, dismissed Mr. Thain on Thursday morning in a meeting that lasted less than 15 minutes, people familiar with the matter said.
After flying to New York for the meeting in Mr. Thain's office at Merrill's former headquarters, Mr. Lewis asked Mr. Thain to resign. Merrill's former chairman and CEO agreed; it was clear he had no choice. "Ken would not have left that meeting without a resignation," said one person familiar with Mr. Lewis's thinking.
Mr. Thain had lost Mr. Lewis's confidence, said a person familiar with the situation, following a series of events in early December. It started when Mr. Lewis learned of mounting fourth-quarter losses at Merrill from a transition team handling the merger, rather than from Mr. Thain himself.
When Mr. Lewis asked Mr. Thain what happened, the Bank of America CEO didn't get a "good explanation for what was happening and why," this person said. Not only did Mr. Thain not appear concerned about the losses, but he "didn't really have a good grasp of what was going on," this person added.
The Bank of America CEO also came to the conclusion that Mr. Thain had exercised "poor judgment" on a number of fronts. He lost key people in the days after the merger closed Jan. 1, including Merrill President Gregory Fleming and wealth-management chief Robert McCann. A number of senior bankers, including Andrea Orcel and Fares Noujam, are also considering leaving.
Mr. Thain also left for a vacation in Vail, Colo., after the losses came to light, accelerated bonus payments at Merrill so they could be collected before the end of the year and scheduled a trip this week to attend the World Economic Forum in Davos, Switzerland, even though Bank of America had signaled that such a trip wasn't a good idea, this person said. Bank of America chief risk officer Amy Woods Brinkley usually makes that trip but the company decided not to send her this year.
Vitriol between the Bank of America and Merrill camps also stemmed from the fact that Merrill had paid out bonuses much earlier than expected. A person familiar with Merrill's bonus scheme said that executives typically are told what their bonus will be by the second week of January and the payments are made in the second half of the month. Some people inside Bank of America believe that Merrill accelerated the payouts to avoid having them cut amid a much-leaner plan at Bank of America.
Bank of America CEO Ken Lewis, right, and John Thain shake hands at a press conference Sept. 15 in which the pair discussed BofA's recent $50 billion takeover of Merrill Lynch.
Some Merrill board members have complained that Mr. Thain didn't fully inform them that mounting losses at the bank threatened to derail the deal last month, until the federal government agreed to step in with $20 billion in additional capital and a sharing of losses on $118 billion in assets.
At the center of the upheaval is the unexpected $15.31 billion fourth-quarter loss at Merrill. The loss was a surprise for a number of reasons, including the fact that Wall Street had believed that Merrill's biggest problem was losses tied to debt pools underpinned by subprime securities. But in a securities filing this week, Merrill detailed a much wider array of losses, including a commercial-property write-down totalling $1.13 billion, a leveraged loan write-down of $1.9 billion and losses tied to credit bets totalling $3.2 billion.
The recent missteps are simply the latest in a string of decisions Mr. Thain has made since his arrival at Merrill that have proven costly to the 53-year-old executive. He was heralded as the dream candidate when he became chief executive and chairman of Merrill when he landed there in late 2007.
The Merrill that Mr. Thain inherited was weighed down by billions of dollars in soured mortgages and he was untainted by the growing crisis that had already cost some CEOs their jobs, including his predecessor, Stanley O'Neal.
Mr. Thain was dubbed Mr. Fix It. The level-headed Massachusetts Institute of Technology engineering graduate had a Harvard MBA and had served as president of Goldman Sachs.
Within weeks of his arrival, he raised billions of dollars to cover Merrill's escalating losses. But like many other Wall Street chiefs, Mr. Thain underestimated the magnitude of the storm to come. "This problem is not a zero, but it is for the most part behind us," Mr. Thain said in an interview with The Wall Street Journal in mid-January 2008.
In one of his first missteps as CEO, Mr. Thain, pressed for capital and optimistic the market would soon turn, cut deals with some early investors in Merrill that would prove costly to Merrill shareholders. Mr. Thain promised a number of shareholders who invested in Merrill in December 2007 and January 2008 that if the bank issued additional common stock at a lower price within a year, the firm would compensate them. Within months, the firm had to raise more cash at $25 a share. Merrill issued additional shares to pay off its earlier investors, diluting its common shares by 39%. The dilution essentially cost shareholders about $5 billion.
At the same time, Mr. Thain made some key hiring decisions that proved divisive. Mr. Thain took over from Stanley O'Neal and inherited Mr. O'Neal's executive team. A number of executives left, but a handful, notably Messrs. Fleming and McCann, stayed. Mr. Fleming, an investment banker, was named president and Mr. McCann continued to oversee the firm's powerful retail brokerage network.
Mr. Thain also offered Goldman colleagues Peter Kraus and Mr. Montag multimillion-dollar packages to join the financially strapped Merrill, offending many people at the firm, including others on the executive committee. Messrs. McCann and Fleming, for instance, went without bonuses in 2007 and 2008.
Mr. Montag, who started in August as Merrill's global head of sales and trading, was given a guaranteed payout of $39.4 million for 2008. Mr. Kraus, who joined Merrill in September and left in late December, received an exit payment triggered by Bank of America's acquisition of Merrill of $25 million, according to people familiar with the matter.
Mr. Fleming's departure created unrest in the firm's investment banking department and a number of senior banker, including Andrea Orcel, the head of Merrill Lynch International, are considering leaving.
Tensions rose in December when Mr. Thain's behind-scenes-lobbying for a bonus spilled out in public. Most Wall Street CEOs, under fire for mounting mortgage losses, went without bonuses in 2008. But Mr. Thain, arguing he helped repair Merrill and engineered the sale of the firm to Bank of America, for months lobbied his board's compensation committee for a multimillion-dollar payment. Once his efforts became public, he came under fire. In the end he asked for no bonus and was awarded nothing.
Before arriving at Merrill, Mr. Thain merged the centuries-old private New York Stock Exchange with a publicly traded company that specialized in computerized trading. He also merged the Big Board with one of Europe's largest exchange operators to give the company exposure to faster-growing derivatives products and international markets.
But Mr. Thain left before the new company, NYSE Euronext, could gather momentum. Amid a toughening market and the challenges with integrating the two companies, NYSE Euronext stock has fallen more than 75% since the beginning of 2007, compared with a 65% fall at rival exchange operator CME Groupand a 32% decline in shares of Nasdaq OMX GroupInc.
"There are some who think he left his successor holding the bag," at NYSE Euronext, says Richard Repetto, an analyst with Sandler O'Neill. "But he did turn the ship and orchestrate some dramatic changes."
In Davos, Mr. Thain was slated to speak Jan. 30 on a high-powered panel titled, "Scenarios for the Future of the Global Financial System." Among the panel's topics: "The demise of independent investment banks," according to the World Economic Forum, which organizes the annual event.
Mr. Lewis is also under fire for his handling of the Merrill situation.
Shareholders are asking why Mr. Lewis didn't discover some of the troubles at Merrill prior to the Sept. 15 deal announcement, and why he didn't disclose the problems to shareholders before the merger closed Jan. 1.
"He and the board acted imprudently," said Richard Finger, a partner in Houston-based Finger Interests Number One Ltd., which owns more than 1 million shares.
Finger Interests filed a suit Thursday in federal court, arguing that the bank and its directors failed to disclose "material" information to shareholders. Mr. Finger added that Mr. Lewis should give up his title as chairman so the board can become more "independent."
Bank of America's board is scheduled to meet next week in Charlotte, but a person familiar with the board's deliberations said Mr. Lewis's job isn't in danger, nor is his title as chairman. Bank of America's board, this person said, was informed about Merrill's larger-than-expected losses shortly after Mr. Lewis knew about them.
—Aaron Lucchetti and Carrick Mollenkamp contributed to this article.
Write to Susanne Craig at susanne.craig@wsj.com and Dan Fitzpatrick at dan.fitzpatrick@wsj.com更多精彩文章及讨论，请光临枫下论坛 rolia.net