The thing about useful stuff is

John Thain quits Bank of America Thursday, January 22, 2009

Image via WikipediaWell it took a week from my asking the question "Can John Thain remain at Bank of America ?" and concluding it seemed unlikely to his "mutually agreed" departure today following a meeting with his boss, Ken Lewis as reported here. Shares in Bank of America fell 16% on the news.

Perhaps the "icing" on the cake was the news that John Thain's new office had been lavishly re-furbished e.g. waste bin for $1,400 and a rug for $87,000, which isn't the sort of thing that goes well with tax payers or politicians who've just bailed out your company.

Merrill's staff should have cause to be thankful to Thain. He

found them a safe-ish harbour in the storms and thus avoided the fate that befell Lehman
negotiated a good deal with Bank of America despite Merrill's awful prospects, as borne out by their Q4 results
paid their bonuses in December, totalling over $4bn despite the huge losses, which was some two months earlier than usual and days ahead of Bank of America taking over

Whilst some felt he had surrender their company too easily, its' fate was probably sealed before he arrived and the only option available was a quickly arranged deal following Lehman's demise.

Might John Thain follow his former colleague, Hank Paulson into academia and avoid the hassle of commercial life? Paulson has just stepped down as US Treasury Secretary and can easily afford not to work again. Similarly Thain is unlikely to be pressured by the need to work again, even without any payoff he may receive from Bank of America. However, his talents are widely recognised and it is probable that a number of firms are already weighing up the possibility of engaging him in some capacity after a short break, especially in the private equity sector where he could avoid much public scrutiny.

Any payoff he does receive will be a matter of public disclosure because Bank of America is listed. So it will be interesting to see whether he extracts one final huge "pound of flesh", despite the company having only just received a huge bailout. For Bank of America any sizeable payout will be a PR disaster since it will clearly be described as a payment for failure that has been funded by the taxpayer. However, John Thain probably has a pretty watertight employment contract under which he will inevitably be entitled to some pre-determined payoff. I also doubt that Ken Lewis will press any case that Thain was dismissed for misconduct or something similar, regardless of his personal feelings, since this would embroil the Bank in far too much unwelcome press over a protracted period, as each side makes disclosures helpful to their case.

Thain could, of course, choose to forego a payoff in recognition of the climate as he evidently decided to do with his bonus. Yet having conceded over his bonus to save face for Ken Lewis, he may be less inclined to do so given the manner of his departure. Watch this space.

Meanwhile, I hear his successor could be inheriting a nice new office.

Labels: Bank of America, Hank Paulson, John Thain, Ken Lewis, Merrill Lynch

posted by John Wilson @ 7:59 PM Permanent Link ,

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Can John Thain remain at Bank of America? Friday, January 16, 2009

NEW YORK - SEPTEMBER 15: Bank of America CEO ...

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.

Labels: Bank of America, goldman sachs, Hank Paulson, John Thain, Merrill Lynch

posted by John Wilson @ 12:04 PM Permanent Link ,

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Credit teams are the real villians of the financial crisis Monday, September 22, 2008

Image via WikipediaWas it short sellers that prompted panic about bank collapses or might the withdrawal/reduction of credit lines from commercial banks played a greater part? Merrill Lynch confirmed that Bank of America had cut its' credit lines to Merrill in the week preceding its' acquisition.

Credit lines are an essential part of the liquidity portfolio for brokers and if they are removed that does two things

it immediately constrains the ability of the broker to trade and may force them to reduce positions at a time when forced sales will exacerbate their financial woes
it sends a clear message that confidence has been lost and that news travels fast, causing further "panic" and prompting either asset withdrawals by investors or tightening of credit lines by other firms, all concerned about being left with nothing

A weakened share price by itself does not cause a company to fail. However, the indirect effects are usually

it impedes the company's ability to raise further capital
it generates a loss of confidence in the company - a share price reflects views on a company, which in turn triggers more direct effects e.g. withdrawal of deposits
a re-examination of a company by a credit rating agency, which in turn may downgrade the company and prompt further problems

Had Lehman had an abundance of credit, it wouldn't have collapsed - it was its' liquidity [or lack thereof] that prompted the end of the firm.

In case you think I am picking on commercial banks, brokers have their own credit teams who do the very same thing and will readily cut the trading lines of a client if there is a hint of a problem.

Labels: Bank of America, Lehman Brothers, Merrill Lynch

posted by John Wilson @ 8:26 AM Permanent Link ,

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Now Morgan Stanley - what next, Goldman? Thursday, September 18, 2008

Image via Wikipedia After a week of turmoil which has seen Lehman declare insolvency and Merrill run into the arms of Bank of America, only two independent investment banks remain - Morgan Stanley and Goldman Sachs. And now the unthinkable is underway - the share prices of these two Goliaths are under attack and the CDS prices for their debt is ballooning.

Every "given" during my working life has been torn to shreds this week. A week ago it would have been unthinkable for these firms to be considered vulnerable. But a day seems an eternity right now and news has emerged in the last 16 hours that Morgan Stanley is already in talks with Wachovia Bank, presumably on the basis that its' management know it may not survive being in the spotlight for long. If this goes through, that leaves just Goldman Sachs - the most respected firm in wholesale markets. Can they withstand the spotlight and hold the hounds at bay - if anyone can give you a categoric answer, then I doubt they know what they are talking about, given the climate we are in.

Along with many others, I have spent the last week in a shock. When the dust settles, it will be a very different [financial] world we face. The game is changing very quickly and the power base of London and New York may have been fundamentally undermined. This leaves open the possibility of markets shifting, especially with the growing might of sovereign wealth funds. International money can move easily and people follow money. Many other places stand very ready to welcome both.