Credit crunch villains get their parole
John Thain left Merrill Lynch with his reputation in tatters in the credit crunch, but his business acumen is still in demand. And he is not the only one, reports Stephen Foley
Tuesday 09 February 2010
I think I'll keep my office exactly the way it is," John Thain told reporters as he took over the helm of the US small business lender CIT Group yesterday. Well he might. His is a remarkable resurrection, and he won't be wanting to jeopardise it. He must have thought his high-flying career might never have recovered from the revelations, a year ago, that he had spent more than $1m redecorating his office at Merrill Lynch while that investment bank was struggling for its very survival.
It is worth recounting the expenses. Mr Thain signed off on the purchase of an $87,000 rug for his personal conference room, a 19th-century credenza costing $48,000, and a "parchment waste can" worth $1,400, among other items. The bill totalled $1.2m, including $800,000 for the celebrity designer Michael Smith.
A few months earlier, Mr Thain had been a hero. He was the outsider chief executive brought in to steady Merrill Lynch as it tottered under sub-prime mortgage investments gone wrong, and he sold the company to Bank of America the weekend Lehman Brothers collapsed, in a bold move that saved a storied firm which would almost certainly have been destroyed by the markets the following week.
Before Merrill, Mr Thain had spent more than two decades at Goldman Sachs, where he became a co-president, and then four years revolutionising the New York Stock Exchange.
But at Merrill he become a villainous face of the credit crisis and of Wall Street excess. When the US Treasury called in Wall Street executives to say it was injecting billions of dollars of bailout money into their firms, Mr Thain spent more time than any other executive asking about the implications for executive compensation. And in the days before the acquisition by BofA closed, he ordered the early payment of $3.6bn in bonuses for staff, something that so infuriated Ken Lewis, BofA's chief executive, that he fired Mr Thain in January 2009.
Mr Thain spent last year trying to clear his name, saying that BofA knew full well the bonuses would be paid early, and admitting to a mistake over the office refurb. He eventually paid the $1.2m out of his own pocket.
Now, at CIT, he has the chance to resurrect that earlier reputation for bold strategic moves. At 54 years old, he still has time for a second act. His signing-on package includes up to $7m in CIT stock.
CIT restructured its debts in bankruptcy last December, after the US government, having already lost its original $2.3m bailout investment in the lender, balked at handing over more. The company's clients include hundreds of thousands of US retailers, Dunkin' Donuts franchise owners, and other small businesses, and Mr Thain said yesterday that the US economic recovery depended on firms like CIT being able to keep credit flowing to small businesses.
CIT's board swallowed their doubts about being associated with Mr Thain in the expectation that he can bring his old business acumen to repairing its finances. Restore its fortunes and Mr Thain might end up restoring his tattered reputation, too.
Richard Fuld: Former CEO, Lehman Brothers
Few faces from Wall Street are as recognisable as Dick Fuld, the aggressive CEO of Lehman Brothers, who expanded his firm into risky mortgage trading only to see it collapsing around him. The crisis of 2008 cast him first as an obstinate, and ultimately, as a pitiful figure, making it doubly hard to see a route to redemption. While a blizzard of lawsuits from furious shareholders occupies much of his time, Mr Fuld has none the less been keeping abreast of markets and in touch with old colleagues. As well as free advice for friends, he has taken on a small staff for a new shell company based in Manhattan with which he hopes to one day return to business. Reports at the end of last year suggested that this firm, Matrix Advisors, was gently seeking funds, which Mr Fuld might put towards small business lending or VC projects.
Charles Prince: Former CEO, Citigroup
Chuck Prince is the "retired" chairman and CEO of Citigroup, according to the website of his current berth, Albright Stonebridge, the consultancy chaired by former US secretary of state Madeleine Albright. He is described as a "senior counselor" to the group, and to a division that advises on emerging markets. Mr Prince's so-called retirement from Citigroup came as the credit crisis escalated at the end of 2007, six months after he had defended the bank's trading of mortgage-related securities by saying "as long as the music is playing, you've got to get up and dance".
Alan Schwartz: Former CEO, Bear Stearns
Alan Schwartz, a long-time investment banking deal-doer for Bear Stearns, was named its CEO just two months before the firm went into its final tailspin in spring 2008. Although he appeared out of his depth as clients on the trading side of the firm deserted in a financial panic, he left after the rescue takeover by JPMorgan Chase with his earlier reputation more or less intact, and he has resumed his deal-doing at Guggenheim Partners, a boutique investment bank owned by the private Guggenheim family. Most recently, he was responsible for Guggenheim's buying a portfolio of iconic US magazines including Billboard and The Hollywood Reporter.
Stanley O'Neal: Former CEO, Merrill Lynch
Stan O'Neal's was the first Wall Street head to hit the carpet, as the architects of the boom-time push into risky mortgage investments got their comeuppance. He was forced out in October 2007 as losses mounted, and while Merrill Lynch went from bad to worse – requiring first its sale to Bank of America and then a bailout by the US taxpayer – Mr O'Neal has kept hold of the handful of directorships he had around that time. In January 2008, he was appointed to the board of Alcoa, the aluminium producer, where he sits on its audit committee. He also holds a directorship at American Beacon Advisors, an asset manager.
Hank Greenberg: Founder and former CEO, AIG
The ghost of Hank Greenberg haunted AIG, long after he was forced out in an accounting scandal in 2005, and observers of the insurance giant he created furiously debate whether it was on his watch that its trading of credit derivatives began exploding out of control. From his private insurance venture CV Starr & Co the octogenarian businessman has battled AIG over the ownership of billions of dollars in stock and now, having settled outstanding court cases, is embarking on building Starr into an insurance conglomerate in its own right, poaching some former AIG executives and earning it the nickname AIG II.
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