Former Merrill star Thain ousted at Bank of America
Thain hit by allegations he had spent $1.2m on his office as Merrill's losses spiralled
Friday 23 January 2009
John Thain, the Merrill Lynch boss who orchestrated its fire sale to Bank of America at the height of last autumn's financial panic, has been ousted from the company after a vicious run-in with BoA's chief executive, Ken Lewis.
Insiders said Mr Lewis had lost confidence in the 53-year-old Mr Thain, amid rising unrest among Merrill's senior staff and after new allegations that Mr Thain spent $1.2m (£865,000) to redecorate his office even as Merrill's losses were skyrocketing.
The two men have been at loggerheads since last month, when unexpected losses on Merrill Lynch's trading desks came to light and threatened to unravel the takeover. A furious Mr Lewis initially considered backing out of the $50bn deal, but the US government agreed to provide $20bn in new capital and $118bn of guarantees to ease the strain of absorbing Merrill's battered balance sheet.
At a dramatic 11.30am showdown, a meeting lasting barely a few minutes, Mr Thain resigned as head of the Bank of America wealth management division which has absorbed Merrill. The rancour at the top of the company has been a major talking point on Wall Street for days, and damaging leaks from inside Merrill continued yesterday morning, when details of Mr Thain's expensive office redesign emerged on the news website The Daily Beast.
He 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 numerous luxury items. The work totalled $1.2m, including an $800,000 fee for the celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.
The office makeover came a few months after Mr Thain moved to Merrill from the New York Stock Exchange, where he was chief executive until November 2007, and the revelations yesterday represent another blow to his reputation. Last month, it emerged that he had asked for a $10m bonus, even after the company posted billions of dollars in writedowns on toxic mortgages and prepared to lay off thousands of staff. He withdrew his request after it was leaked to the press.
Mr Thain was fêted as a hero in September for engineering the sale to Bank of America on the same weekend that Lehman Brothers went bust. Wall Street players believed that Merrill Lynch could not have survived the financial panic that ensued.
Mr Lewis paid in BoA shares, so the original $50bn price tag had shrivelled to $24.1bn by the time the deal closed on 1 January, but many investors now believe that the deal was ill-advised while the value of Merrill Lynch's assets remained so uncertain.
In a New York lawsuit, the shareholder Steven Sklar accused BoA of failing to tell its shareholders about the record $15.3bn quarterly loss towards which Merrill was headed when investors gathered to vote on the deal on 5 December.
Mr Lewis is understood to feel that he never got a satisfactory explanation for the spiralling losses at Merrill as they emerged in December, undermining his relationship with Mr Thain. Mr Lewis was also furious over Mr Thain's decision to head off on a Colorado skiing holiday during that period. People close to the Merrill boss have briefed that he didn't trust BoA insiders not to leak financially sensitive information, and that he was working and contactable in Colorado.
Unrest within Merrill Lynch also helped to undermine Mr Thain's position. In recent weeks, his deputy, Greg Fleming, quit, along with wealth management chief Robert McCann, amid speculation of differences with Mr Thain.
Mr Lewis has turned the north Carolina-based Bank of America into the biggest retail bank in the US, but he has been repeatedly embarrassed by his company's ventures in investment banking. In 2007, he said he had already "had all the fun I can stand in investment banking" after big losses on mortgage derivatives. Last week, BoA posted a $1.79bn loss for the last three months of 2008 – its first quarterly loss since 1991 – and slashed its dividend to 1 cent.
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