Posted on Thu, Jan. 22, 2009
last updated: January 22, 2009 04:50:20 PM
Former Merrill Lynch chief executive John Thain has resigned his new post at Bank of America Corp., the bank confirmed this afternoon.
Bank of America chief executive Ken Lewis flew to New York today, "and it was mutually agreed that his situation was not working out and he would resign," spokesman Bob Stickler said.
Thain agreed to sell Merrill to Bank of America in September with the New York investment bank in danger of collapse. Initially, his decision to stay on as head of global banking, securities and wealth management, was well received, but recently the bank has disclosed mounting fourth-quarter Merrill losses and the payment of bonuses shortly before the deal closed.
Thain becomes the latest high-profile Merrill departure, following former president Greg Fleming and brokerage head Bob McCann. Bank of America is well-known for consolidating power after mergers, but the bank said the move does not indicate unhappiness with the franchise it acquired.
"This is a change in leadership, not a change in direction," Stickler said. "We wanted it to work out. It's a leadership question. We're very happy with the Merrill platform since Jan. 1."
Bank of America today later announced that Brian Moynihan, the bank's general counsel and the former head of investment banking and wealth management operations, will serve as president of global banking and global wealth and investment management, replacing Thain. He will remain general counsel while the bank searches for his replacement. Moynihan in December abruptly replaced general counsel Tim Mayopoulos, who left the company amid cuts of high-level executives at the bank.
Bank of America also said that Tom Montag, one of the highest ranking remaining Merrill executives, will continue to run the combined global markets unit. He will report directly to Lewis and become part of the management executive team, which sets strategy for the company.
"Brian Moynihan is a strong manager and one of those people who can effectively envision strategy and execute," Lewis said in a statement. "He has excelled at everything we have asked him to do." Lewis emphasized that the leadership change "in no way reflects a significant change in direction for the Global Banking or wealth management units."
The management shake-up comes only days after Bank of America announced its first quarterly loss in 17 years and a new round of government aid that included $20 billion in capital and protection against losses on $118 billion troubled assets. The bank had previously received $25 billion from the government, including $10 billion for Merrill.
According to a securities filing, Thain's termination could mean he is due to have $3.2 million in stock-based awards vest immediately. With the merger's close, he had stock awards worth $5.2 million vest, according to the filing. Stickler said the bank will disclose his exit package in coming days.
Bank of America shares, on a roller-coaster this week, were down 13 percent to $5.81 in midafternoon.
Lewis' loss of confidence in Thain was due to a combination of factors, according to a source familiar with the matter. Merrill had been losing executives, and the bank heard concerns about his leadership from employees and investors. In addition, Lewis learned of Merrill's rising losses from the Merrill transition team, not Thain himself. When Lewis later talked to Thain, he didn't seem to have a good explanation, the source said.
Thain also went to Vail, Colo., on vacation in December at a time when Merrill's problems were emerging. Although Thain was working on the trip, the move was not perceived well at Bank of America, the source said. Thain also had planned to fly this week to the World Economic Forum in Davos, Switzerland, even though some Bank of America officials had signaled he shouldn't go.
Thain's payment of bonuses to Merrill employees before the deal closed also has emerged as a new black-eye for the bank.
Bank of America spokesman Scott Silvestri said today that Thain made the decision to pay the bonuses in December instead of the normal time of January. Merrill was an independent company at the time but informed the Charlotte bank of the decision, Silvestri said. He declined to say when the bank learned of Thain's decision.
December was a critical month for the merger. The bank has said it learned of rising losses at Merrill in the middle of the month, after shareholder approval on Dec. 5 but before the acquisition closed Jan. 1. Bank of America CEO Lewis last week said he considered backing out of the deal, but proceeded under the urging of regulators.
Last week, Bank of America said Merrill posted a fourth-quarter loss of more than $15 billion, largely because of writedowns related to the fallen value of securities. That loss, though, wasn't counted as part of Bank of America's own $2.4 billion fourth-quarter loss.
The bank wouldn't say how much Merrill paid in bonuses. Merrill disclosed compensation and benefits expenses of $15 billion for 2008, down 6 percent from 2007. That number includes salaries, benefits, retirement payments, commissions for financial advisers and severance for laid-off employees.
Bank of America, which has four times as many employees, reported $18.4 billion in personnel expenses in 2008, down slightly from 2007. The bank doesn't break out what it counts in this category.
The disclosure of Merrill's payouts comes as the bank is slashing 35,000 jobs over three years as part of the Merrill purchase and the weakened economy. Those cuts come on top of 7,500 reductions related to last year's Countrywide Financial Corp. acquisition.
Bank of America had 243,000 employees at the end of 2008, while Merrill Lynch had 58,500 workers. Merrill's number includes about 16,000 financial advisers that Bank of America mostly would like to keep.
The bonuses add to resentment already building among Bank of America employees who are losing their jobs, even as the bank is offering retention payments to the coveted Merrill brokers.
Bank of America is also paying lower bonuses to its own employees this year. In a memo earlier this month, Lewis said the bank has "significantly reduced the targets for yearend compensation," with higher-ranking employees taking the bigger reductions. Lewis has recommended that he and his top reports not receive bonuses for 2008.
Bank of America this week is in the midst of cutting capital markets and investment banking positions in the combined company, a move that is expected to hit higher-paying jobs in Charlotte. Within the corporate and investment banking unit, the company is eliminating 46 legacy Bank of America employees in technology and operations, a source told the Observer.
Sources have said the bank could eliminate up to 4,000 positions in capital markets and investment banking areas. After earlier cuts last year, Bank of America had about 4,700 employees in these businesses. Merrill had a larger and better known investment banking and capital markets operation.
When he agreed to stay on, Thain instantly became seen as a possible successor one day to Lewis, although the bank said there was no agreement for him to become heir apparent. Reports had surfaced that the two weren't getting along, but Lewis on Friday said: "We are happy that John Thain has assumed a major role at Bank of America."
Now Thain is leaving with Lewis also under fire for the bank's stock performance and increasing worries about the decision to buy Merrill.
Lewis himself has frequently expressed trepidation about marrying a risk-taking Wall Street firm with a conservative commercial bank. After Bank of America took large writedowns from its own capital markets business last October, he said he had had all of the fun he could stand in investment banking and began to scale back operations. After agreeing to buy Merill in September, he said of the business: "I like it again.”
CNBC also reported today that Thain, who replaced Merrill CEO Stan O'Neill in late 2007, spent $1.22 million to revamp his office shortly after joining the firm. Bank of America traders cheered today when news emerged of Thain's ouster, a source told the Observer.
The bank's best-known executive ouster came in 1998 when David Coulter said he was stepping down as president after the revelation of a major hedge fund loss. Coulter, the former CEO of San Francisco-based BankAmerica Corp., had merged his bank with Charlotte's NationsBank Corp. less than a month earlier and had been seen as a possible successor to Hugh McColl Jr., who had become head of the combined company.