My, my, it’s like kiddies pinching and punching each other in a sandbox, only – yes folks, we’re talking about some of America’s current and former top bankers and finance officials.
First we had Bank of America’s Ken Lewis revealing that he was bullied and threatened by the then-US Treasury secretary into proceeding with the troubled deal for BofA to acquire Merrill Lynch.
Now we have John Thain, former Merrill Lynch chief executive, accusing Lewis of lying and setting out to make him a scapegoat.
After a long career in a dog-eat-dog industry, Lewis should know that the most dangerous people tend to be: a) those who have been scorned and/or humiliated; b) those with little to lose; c) those who want to get their own back.
If he doesn’t, he’ll know after reading page one of Monday’s Wall Street Journal.
Thain has been relatively quiet since his fall from grace a few months ago. But clearly, Lewis and BofA’s recent efforts to portray themselves as put-upon good guys – bullied and possibly deceived into acquiring a troubled investment bank with a sneaky chief executive who had not only played down mounting losses but also secretly agreed to pay out more than $3.6bn in bonuses to staff (not to mention his little $1.2m office refurbishment) - was the final straw.
Now Thain is hitting back, via a well-timed and lengthy broadside in the Journal: “Getting fired is one thing. But nobody has the right to say things that they know aren’t true,” the former Merrill Lynch CEO said of Lewis in one of a series of interviews with the Journal.
In an “effort to restore his sullied reputation”, the 53-year-old Thain claims that BofA lied about its role in paying out $3.62bn in bonuses and in losses at Merrill that cost him his job in January, just after BofA bought the troubled brokerage, reports the Journal:Mr Thain says that he and Bank of America Chief Executive Kenneth Lewis agreed in writing that the bonuses could be paid before Bank of America’s acquisition of Merrill closed, which led to the early payments. “The suggestion Bank of America was not heavily involved in this process, and that I alone made these decisions, is simply not true,” he says.
Thain says although he knew he would no longer be CEO, he and Lewis “agreed on a vision and the strategic value of the deal”. Lewis subsequently assured him he was a key candidate to eventually succeed him as CEO. But then, claims Thain, Lewis set out to make him the scapegoat for problems related to the Merrill takeover:
Mr Thain says the bank’s statements have left the impression he was hiding information. “What bothers me is I was trying to do the right thing for Merrill’s shareholders, employees and clients,” he says. “I want to set the record straight.”
We’ll leave aside discussion of the methods by which Thain tried to the right thing for Merrill’s shareholders and clients – though it’s clear he was doing the right thing by the bonus-receiving employees. But what we’re really wonderingis why he has waited until now to disclose the joint ‘written agreement’ with Lewis that he refers to in the interview, and even then why he has chosen to show it only to the Journal.
BofA meanwhile has stated publicly that the decision to pay bonuses to Merrill employees in December rather than the customary time of January was solely Thain’s. And Lewis has clearly endorsed this version of events.
As Edward Harrison at Credit Writedowns notes:
Honestly, Ken Lewis does not have a lot of credibility here after details of a February deposition were revealed last week. In that deposition, Lewis admitted to consummating the merger with Merrill Lynch despite his own misgivings about the deal, apparently because his job was on the line. So we have to take Lewis’ statements with this in mind.
Asked by the Journal about Thain’s remarks, BofA merely said it “stands by statements it has made”. BofA spokesman Robert Stickler wrote in an email: “These issues have been previously extensively reported by the news media. We believe it is time to move on. We wish Mr. Thain well in his future endeavors.”
Sure.
Says the Journal:Nevertheless, the issue is likely to surface again at Bank of America’s annual meeting on Wednesday, when shareholders will have a chance to question management about the controversial acquisition, which involved emergency government funding. In testimony disclosed last week, Mr. Lewis said he felt pressured by government officials to complete the deal and to remain silent about his concerns about mounting losses at Merrill.
Oh and it should be noted that Thain does admit “some mistakes” in the Journal interviews:
He lobbied last year for a multimillion dollar bonus from the Merrill board, although in the end he asked for no bonus. In 2007, he spent more than $1.2 million renovating his office and two surrounding conference rooms at the firm’s lower Manhattan headquarters. One room had been used as a gym by his predecessor, Stan O’Neal, who was forced out after big bets on mortgage-backed securities backfired. Mr Thain reimbursed Merrill after the renovation became public.
In the end, however, it would seem Thain should feel more like a superhero than a villain. He told the Journal that since Lewis asked him to step down as Merrill CEO in January, he has become used to being stopped on the street by strangers. Most thank him, he says, for saving Merrill by agreeing in September to sell it in a deal then valued at $50bn (“a rapid-fire bid to avoid the kind of collapse that led Lehman Brothers to seek bankruptcy protection”). But there are those, he added, who tell him he is just another greedy Wall Street executive.
Now, however, at least he might feel more like a well-avenged one.
Concludes Credit Writedown’s Harrison: At the end of the day, none of this is beneficial to Bank of America shareholders, who have seen their shares fall from over $50 per share to as low as $3 before rebounding to over $10. They now trade for $9.10. Just think back, before the Countrywide and Merrill acquisitions, Ken Lewis could have claimed to be a rival for king of the hill to JPMorgan CEO Jamie Dimon, who now touts his firm’s ‘fortress’ balance sheet. But, after two disastrous mergers, Bank of America is a shambles. The real losers in this he-said she-said saga of corporate executives managers and regulations are the owners of the business, the shareholders.
And yet, John Thain is the only one to have lost his job.
Related links:
Thain fires back at Bank of America – WSJ
BofA ‘threatened’ over Merrill deal – FT
BofA saga continues as Thain calls Lewis a liar – Credit Writedowns