The Leveling of Merrill Lynch

Posted by John Carney, Jan 31, 2008, 9:15am

Yesterday Merrill Lynch said that Greg Fleming—the bank’s president and chief operating officer—and Bob McCann—who heads the brokerage business—would not receive bonuses for 2007. This decision was made by the board of directors on Monday, according to a filing with the Securities and Exchange Commission.

Zeroing out executive bonuses has become something of a trend on Wall Street. Bear Stearns and Morgan Stanley have made similar moves. But before you weep for Fleming and McCann you should read the fine print. Both men received their base salary of $350,000 as well as "retention options."

The real story here, however, is taking place more quietly and behind the scenes. Newly minted chief executive John Thain is working to dismantle some of the institutional hierarchy of Merrill, flattening the leadership structure and having more executives report directly to him. This is widely seen as effectively demoting Greg Fleming—who, for now, still holds the title of President of Merrill—who will no longer be a gatekeeper through whom more junior executives report to the chief executive. There has been some talk by insiders that the unwinding of the hierarchical structure that grew under Stan O’Neal has some executives bristling that they are losing rank and authority.

Yesterday Thain told investors that Merrill is exiting the collateralized debt obligations and structured credit businesses.

Merrill executives received no bonuses for 2007 [Reuters]
Merrill Lynch Filing [SEC]

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Comments

Posted by Mr. M, Jan 31, 2008 10:27AM

350k? That's almost nothing in terms of exec salaries.

An associate at a management consulting firm makes half that. Now, I would be more interested in what those "retention options" are, of course.

Posted by WallStYouth, Jan 31, 2008 10:33AM

You're damned if you do, damned if you dont.

Its kinda sad that these execs get fucked on both sides of the fence sit back and watch your competitors rake in billions from high risk CDO's/SIV's and you stock tank your out. Play ball end up on wrong side of the fence and your own.

Posted by chris, Jan 31, 2008 11:12AM

wall st youth- what??

Posted by , Jan 31, 2008 11:27AM

Mr. M, it's right there in the SEC link. Fleming got retention options on about 1.2 million ML shares, McCann on a little under 1 million shares and Rosemary Berkery (VP-General Counsel) got options on about 600k shares.

The options are struck at 55.59 (ML closing price on Jan. 28) and one-third become exercisable in 2010 under all circumstances. The other 2/3 are what we FX types call "knock-ins": they evaporate unless the underlying hits a second, "barrier" strike (it's 80 for half of them and 100 for the other half).

So, how much are all these retention options worth? Just plug the figures into your Black-Scholes or some suitable pricing model for exotics, and see what it spits out.

Off-the-cuff, I'd guess the plain-vanilla ones must be worth at least $10 apiece; with the knock-ins worth considerably less, obviously, since they're automatically cancelled unless ML reaches $80 and then $100. So based on the plain-vanillas alone, Fleming's retention options are worth a minimum of $4 million (one-third of 1.2 million options valued at $10 each).

AND, they get to keep the options even if they leave Merrill.

Execs always get treated like this - no matter how atrocious their performance. Whatever the board takes away with one hand, it gives back with the other. Exactly the opposite of what happens to non-management types, of course.

Posted by , Jan 31, 2008 11:43AM

Mr. M. a consulting associate maybe makes half of that ALL IN, definitely not just salary with no bonus

Posted by FIG'r, Jan 31, 2008 1:07PM

Fleming is nonsense.

He was an ex-Muni flunky, McKinsey reject who rode the wave of covering asset manager dsitributors for ML in FIG, when no one wanted to. Sorta like having the Ford account at Firestone Tire.

Ask anyone in ML-FIG from the 90s....12 FIG Bankers left for LB when he became group head. He is a glorified bag-man and Thain will see thru him by the end of Q1.

Posted by Research, Jan 31, 2008 3:46PM

Couldn't have happened to a nicer man... Bob we will never forget.... NEVER!!!! You screwed a good man out of a +$1mm bonus once, now its come back in the way of Kharma...

Now if they would only throw you out on your ass!

Posted by Former MLer, Feb 01, 2008 1:24AM

Greg Fleming should be fired along with the rest. While Merrill was burning he was running a "lets all jump on the global warming bandwagon and make beleive that ML is a green company" video conference from Hopewell. He also spoke about how they grow mushrooms (on part of the campus) so ML can get tax breaks that should go to farmers.

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