Executive Excesses: In another world

The executive excesses uncovered by the end of the long boom initially incited just employee and shareholder anger. They have now given rise to public fury. Stephen Foley reports

So Wall Street excess has a new face. Step forward Merrill Lynch boss John Thain, ejected in spectacular style from the firm's new parent company, Bank of America, after revelations that he had squandered $1.2m (£873,000) of shareholders' fast-disappearing money on redecorating his office.

A "commode on legs" costing $35,000? Regency chairs at $24,000? Some $1,400 on a "parchment waste can"? Come on, John. What were you thinking? His $85,000 Persian rug looks set to become as emblematic of finance industry greed as Tyco International chief executive Dennis Kozlowski's $6,000 shower curtain was of corporate malfeasance in the dotcom era.

The sheer hilarity of Mr Thain's purchases briefly lightened the gloom on Wall Street, as japesters discussed what a "commode on legs" might be. CNBC, the business TV station watched on almost every trading floor, flashed up a portable hospital toilet-cum-wheelchair for the infirm as one suggestion. (It is actually an antique cabinet or chest of drawers.) Bloggers trawled Google to point out you don't have to pay $68,000 for a 19th-century credenza, since one online store is selling a similar piece for $4,826.

The bulk of the bill was the $800,000 invoice from the celebrity designer Michael Smith, whose Hollywood clients have included Steven Spielberg, Dustin Hoffman and Cindy Crawford and who has just been commissioned to redecorate the White House for the Obamas – at a fraction of his normal fee.

The extraordinary revelations came on the heels of news that Mr Thain had requested a $10m bonus for himself, days before Merrill closed the books on a record-busting $15.3bn quarterly loss and while finalising plans for tens of thousands of job cuts.

The notion that Mr Thain, a former Goldman Sachs executive who had been running the New York Stock Exchange since 2003, could commission the office makeover as one of his first acts on moving to Merrill Lynch at the end of 2007 took onlookers' breath away. He had been hired, after all, to repair the company's battered balance sheet as the scale of its mortgage losses began to emerge, and investors had rather assumed he would have been in fire-fighting and cost-cutting mode from day one.

Except that the episode should be unsurprising to anyone who has observed the top cadre of Wall Street executives during the long finance industry boom. Corporate jet travel and chauffeur-driven cars are the norm, keeping executives in a bubble. Their eight-figure salaries put them into a circle where it is necessary to splash cash on luxurious entertaining, networking and philanthropy and to kit out one's residences with antique furniture and famous art.

We've been here before. Just before the Wall Street bubble burst, at the start of 2007, Todd Thomson was ousted as head of wealth management at Citigroup when that corporation belatedly got around to cutting costs, and realised he was lavishing far too much on his office and on his favourite journalist.

The views of Central Park from his 50th-floor Manhattan office were clearly not enough. The boardroom, almost exclusively used by Thomson, had marble flooring and polished wood cabinets, we learnt. In his main office, he installed a tropical fish-tank, Persian rugs and a giant wood-burning fireplace. Citigroup insiders dubbed it the "Todd Mahal". Mr Thomson also caused a furore with his use of the corporate jet, kicking off other executives for the return leg of a visit to China so he could travel alone with CNBC's Mario Bartiromo, the reporter nicknamed the Money Honey.

In the UK, Royal Bank of Scotland courted controversy for its lavish new £350m Edinburgh headquarters. The private and prickly Sir Fred Goodwin, then its chief executive, issued a writ against a Sunday newspaper for a series of stories in 2004 which accused him of wanting to build a private road between the HQ and the nearby airport to avoid travelling on the A8. Sir Fred eventually withdrew the writ. He was also angered by the same paper suggesting he had ordered a "scallop kitchen" be built close to his office. The paper later apologised for suggesting the kitchen was specially built for scallops.

The end of the boom has forced a lot of these excesses to be scrutinised more harshly. Jimmy Cayne, long-standing chairman of Bear Stearns, rarely came into the office on Fridays, and would often be found on the golf course. Weekday evenings, he would routinely fly by helicopter for a quick round after work. But when two Bear Stearns hedge funds got into trouble, the first outward sign of the severity of the credit crisis, and it was revealed Mr Cayne was still on the green instead of in the office, his reputation never recovered. The fateful week last March, when Bear went into its final death spiral, he was in Detroit, keeping his engagement at the North American Bridge Championship. That only outraged staff and shareholders. But as 2008 wore on, and governments on both sides of the Atlantic were forced to pump billions into the banking system to keep these firms afloat, it became a matter of public fury, too.

Merrill's spiralling losses have forced Bank of America to seek a second instalment of taxpayer cash to stay afloat, which was why Mr Thain had to go. AIG, the insurance firm, has been on govern ment life support since September, was condemned for rewarding 70 employees with a week-long stay at the luxury St Regis Resort in California, where they ran up a tab of $440,000. Incredibly, a week later, it was revealed the company was planning another trip – but executives cancelled that one.

Until Mr Thain's commode hit the headlines, Dick Fuld of Lehman Brothers was probably the most famous face of the credit crisis, with his grilling on Capitol Hill a signal moment. A House of Representatives committee brandished documents showing four days before the bank filed for bankruptcy protection, Lehman's compensation committee was asked to grant $20m in "special payments" for three executives who were leaving.

Somehow, even with the money-making edifice collapsed about them, Wall Street's executives are only now looking up from the trough. As Mr Thain and a myriad examples before him show, it will be a tough adjustment now the trough has been taken away.