Can John Thain remain at Bank of America? Friday, January 16, 2009
Image by Getty Images via DaylifeThe credit crunch has unravelled the reputations of some of the previously most respected investment banking bosses. Previously praised for their deal-making abilities, business savvy and genius, many have been undone by the collapse of their empires e.g. Dick Fuld. Yet of all of those in the spotlight I have perhaps been most astonished by the apparent fall from grace of two former Goldman Sachs senior figures, Hank Paulson and John Thain. Regarded in awe within and outside of the firm, they were credited with steering Goldman on an prosperous course for a number of years.
Hank Paulson, as the US Treasury Secretary, appeared to have the perfect CV to design and oversee the actions of the US administration given his extensive experience on Wall Street. Yet he has been widely derided for his handling of the situation and notably the hastily arranged TARP.
Meanwhile John Thain, who was only parachuted in Merrill Lynch at the end of 2007, and who appeared to have cleverly manoeuvred his "ship" into the safe harbour of Bank of America is now being castigated for the issues being uncovered in the Merrill Lynch balance sheet that weren't declared up front. The Bank of America has now received a further $20bn capital injection from the US Government to ensure it remain adequately capitalised. Trust in Thain by his boss, Ken Lewis, was already strained following the furore over bonus claims the Merrill executives were allegedly going to request, as well as the awful Q4 performance by Merrill.
When your current boss thinks you hoodwinked him, regardless of the fact you were acting for Merrill shareholders at the time in soliciting the best price, your position is surely shaky. Having been in charge of the "ship" for a year, Lewis may also question whether Thain has demonstrated he can turn things around quickly enough at Merrill, especially given the state they have now apparently inherited.
Separately, the FT are also raising the question of whether the bonuses paid to Merrill staff in Q408 could come under scrutiny if it turns out Merrill was technically insolvent at the time the BofA deal closed. If Merrill staff weren't already panicked by fear of layoffs, the prospect of having to repay bonuses should really make their day.