Monday, January 26, 2009

The Thane of Merrill Lynch

It's never surprising when the CEO of the acquired gets shown the door by the acquirer. 

And it probably didn't help that the acquired company lost a cool $15.4B - that's $15.4 LARGE - in the fourth quarter of 2008.

But it's also likely that, for acquirer Bank of America, there were several layers of frosting on the cake before Merrill Lynch's CEO John Thain was shown the door.

One was no doubt that he did not directly inform his new boss at BoA of the "December surprise". Instead of calling Kenneth Lewis himself, Thain apparently had some underling inform Lewis of the $15.4B loss. Thain was skiing in Vail at the time. I'm certain it didn't exactly charm Lewis that Thain left the conveyance of this piece of new to someone else. (What's with Thain? Doesn't he know about leaving a 3 a.m. voice mail message?)

Then there was the way Thain handled the awarding of 2008 bonuses, and the far less material - but far juicier - fact that, while Merrill was tumbling arse over teakettle into oblivion, Thain spent $1.2M redecorating his office. (Source: NY Times.)

First, the bonuses.

Merrill bonuses are usually awarded in January, but what with the acquisition, Thain apparently wanted to move them forward a bit - while he still had the authority to grant them. So, in December, Thain okayed payouts said to total in the $3B - $4B range.

In light of Merrill's staggering losses, one certainly must ask just what anyone there did to merit a bonus. NY's Attorney General is said to be asking some questions: the payouts are under investigation.

I haven't seen much detail on who got what, but Thain's personal driver apparently got an $18K bonus, bringing his compensation for the year to $230K, what with base, OT, and bonus.

Presumably, the driver had little to do with the gazillion dollar losses. (I'm sure he wasn't whispering ideas for new, zany derivatives into Thain's ear.) Still, $230K seems like a hefty outlay for a driver. (It's over $600 a day in cab ride equivalents. But, of course, it would be unseemly for Thain to have to get out on the street and vie for a cab with us hoi polloi.)

$230K. Maybe I've chosen the wrong profession. For $230K, baby, I can drive your car. (Beep-beep-beep-beep, yeah.)

Thain is rumored to have considered asking the compensation committee to kick in $10M - the amount to which the desired bonus had "dwindled" from the $30M - $40M amount that Thain had originally felt appropriate -  for his 2008 bonus. In the end, Thain didn't go through with his request.  I suppose his 2007 compensation of $83M will see him through.

But, of course, the most interest tidbit is the $1.2M for office decoration.

What do you get for that kind of money?

The list, which I found on CNBC, says you get:

  • Area Rug $87,784
  • Mahogany Pedestal Table $25,713
  • 19th Century Credenza $68,179
  • Pendant Light Furniture $19,751
  • 4 Pairs of Curtains $28,091
  • Pair of Guest Chairs $87,784
  • George IV Chair $18,468
  • 6 Wall Sconces $2,741
  • Parchment Waste Can $1,405
  • Roman Shade Fabric $10,967
  • Roman Shades $7,315
  • Coffee Table $5,852
  • Commode on Legs $35,115


Four pairs of curtains for $28K. And I thought I was a swell every time I've ordered new stuff from Country Curtains.

Since the area rug and the pair of chairs both log in at the same price - $87,784 - I'm wondering if there's a typo here.

I mean, and area rug is one thing.

Even if it were hand crafted by a four-year old slave laborer somewhere, these things can cost a lot. But two chairs for $87K?

I know they were for guests, and all, but...

And was the $18K George IV chair just for show? What if a guest wanted to sit on it? Does it have a cord between the arms, like they do in ye olde heritage houses, so that you won't accidentally sit on it?

I read on Bloomberg that the unflappable Thain had gone flappable last summer, and:

...halted a meeting with his chief financial officer and hurled a chair against the wall, shattering a nearby glass panel, according to people briefed on the meeting.

Could the hurled chair have been one of the guest chairs, or that $18K George IV?

Of course, the one thing that leaps off the list is the "Commode on Legs" for $35K.

A commode on legs! Really?

Well, according to The Consumerist, really not. It is, in fact, an ornate little chest that was used, in pre-indoor plumbing days, by some rich folks to store a commode,that they no doubt didn't have to empty themselves.

(Hey, English majors, is calling this piece of furniture a commode an example of synecdoche or metonymy or whatever the figure of speech is for "container for a thing contained"?)

There's no mention of an actual commode-commode, but I'm sure that Thain's office did have an executive washroom, with an executive toilet in it.

If not, Thain could, I suppose, have used the $1,405 Parchment Waste Can (not available at Bed, Bath and Beyond, I'm guessing).

He may have been tempted to do so when BofA told him to go shit in his hat.

But I'm guessing he just asked his $230K a year driver to port him back to his $27.5M Park Ave digs, or his $10M shed in Rye.

These corporate thanes, out there living like kings.

How nice it will be if one of the outcomes of the current crisis is the end of the era of wretched excess. ($35K for a 'Commode on Legs'....)


Rick said...

I'm no lawyer, but there is an old rule called "fraudulent conveyance", designed to protect creditors in a situation where a debtor transfers valuable property to insiders and their friends and family just before declaring bankruptcy, leaving creditors with little or nothing. This would definitely apply in Merrill's case to the $4B in bonuses if Merrill had gone bankrupt, or possibly it will apply if Bank of America goes bankrupt. Unfortunately in terms of this issue, the government isn't going to let BAC file for bankruptcy, so it will have trouble clawing back those wasted billions of what is really taxpayer money. It is a disgrace that these banks are given this money with no restrictions against such outrageous expenses.

For further commentary on this point, watch this video: WARNING #1: Vast amounts of profane language; WARNING #2: don't watch this with anything in your mouth, or you will spew it onto your computer.

c james. said...

For as long as I hear news about this type of Wall Street gluttony, it still shocks and angers me. It's hard for me to believe that all the hot-shot, high rolling investors who have been to Thain's office, didn't get suspicious of out of control spending after seeing his office. I used to have such admiration for Thain, and I hate to say it, but it turns out he's just like all the rest of these CEO crooks.

Contract or no contract, with all of these 'career-jumping' CEOs out there who do nothing but jump from one golden parachute to the next, it may be about time to enact legislation that would strip these CEOs of their personal fortunes, irregardless of their employment contract. If it can be proven that they didn't faithfully act in the best interest of the company, its employees and investors, then I say strip that CEO of 90% of all earnings, stocks, dividends, whatever that he accumulated in the time he was at the healm. That might put these crooks in check once and for all.

Broke Bettie said...

Great post. This type of stuff just makes me so sick - ugh!

Trixie said...

Well, I'm sure you've seen that Thain now intends to refund ML the 1.2 cool mil he spent on his office upgrade - what a guy!

Also read on the Huff Post that he was overheard settling for tap water at a fancy restaurant rather than go for the pricey fizzy water - baby steps....

In the good news category, Obama officials have put the kibosh (sp?) on citi's plans to buy a new $50 mil private jet even though they have gotten $45bil in our money.