"Code Green Downfall, I Say Again, Green Downfall"

Author:
Updated:
Original:

What do you do when your firm is on the verge of being absorbed, you are about to announce massive quarterly losses and the government might impose salary restrictions? Why, announce bonuses early! That was easy.

Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America.
The timing is notable because the money was paid as Merrill's losses were mounting and Ken Lewis, BofA's chief executive, was seeking additional funds from the government's troubled asset recovery programme to help close the deal.
Merrill and BofA shareholders voted to approve the takeover on December 5. Three days later, Merrill's compensation committee approved the bonuses, which were paid on December 29. In past years, Merrill had paid bonuses later - usually late January or early February, according to company officials.
Within days of the compensation committee meeting, BofA officials said they became aware that Merrill's fourth-quarter losses would be greater than expected and began talks with the US Treasury on securing additional Tarp money.

It will come as no surprise that we love bankers. Yes, we mean you. Without your antics, where on earth would we be here at Dealbreaker? Still, there must be some limits to the shifty imaginations lurking under those big, blue eyes. No? At some point someone has to say "enough is enough" and buckle down to admit that maybe the institutional decision to hold 30:1 leverage, and the structural changes you've made over the past ten to fifteen years to become a securitization clearing house, routinely torturing Basel to within inches of its life, might not actually have been the way to eternal glory and a spot in the great hall at Valhalla (where the time will be spent underwriting Bowie bonds on hunting ventures, no doubt). Someone had to say that. Someone had to, ever so gently, put a toe on the brakes.
Unfortunately, in this case, that someone was John Thain.

Related

No One Told Ken Lewis Shareholders Needed To Know About Merrill's Massive Losses, Okay?

Remember in 2008, when Ken Lewis was all, “Oooh, wait, I don’t know about this Merrill Lynch thing, it looks kinda bad, I don’t think I want to buy it anymore, I’m nervous [bites nails, shifts weight from one foot to the other like he has to pee]” and tried to back out of the deal? And Hank Paulson threatened to stuff him in a meat locker if he did so Lewis said okay, fine, I’ll buy it and then did, without mentioning anything to shareholders about Merrill's impending losses? Well 1) People are still upset about it but 2) Ken was under the impression shareholders were on a need to know basis. Top executives at Bank of America Corp did not tell shareholders just prior to a 2008 vote on its purchase of Merrill Lynch & Co that losses were mounting and expected to weigh down earnings for years, papers filed in private shareholder litigation show. But the bank and former Chief Executive Kenneth Lewis said in their own court papers that they should not be liable to shareholders who claimed to have lacked information they needed to vote on the once $50 billion merger. Lewis also said he had been advised by the bank's law firm and chief financial officer that no disclosure was necessary. No further questions. BofA masked Merrill loss before 2008 vote: filings [Reuters]

Are You A Financial Services Company Stuffed To Gills With Toxic Assets And/Or On The Verge Of Bankruptcy? Don't Hold Your Breath For Brian Moynihan's Call

Time was, Bank of America loved buying companies. Bonus points if there was a not-so-subtle suggestion by the target's CEO that BofA would one day be very sorry for doing so, or that they would've been better off picking up an asbestos manufacturer, or that they were looking at roughly $40 billion (and counting) in legal fees associated with fuck-ups that were to become Bank of America's problem, or that they would have night terrors for the rest of their lives about signing those papers. As it's been a while since BofA went shopping, some in the financial services industry have been wondering if we can expect any announcements re: big deals anytime soon or if Ken Lewis's unsolicited suggestions (Groupon, Sino Forest, The Thirsty Beaver, and most recently: "a P&C insurer with outsized exposure to the Northeast") are or have ever been under consideration? Sadly for fans of the Lewis Era/style of doing business, not so much. Mr. Moynihan said in response to an audience question [at the bank's two-day investor presentation conference for financial companies at the Plaza hotel] that the bank has "no acquisition plan at all." BofA's Moynihan Says Fiscal Cliff Impact Already Happening [WSJ]