The former chief executive of Merril Lynch and Co, John Thain, has found himself ousted from Bank of America Corp after the surprise discovery of losses at the brokerage that was acquired by the bank less than a month ago. The losses created a crisis of credibility, reports said.
Bank of America CEO Kenneth Lewis had expressed his dismay over the scope of losses from motrgage and toxic debt on Merrill's books, after which analysts and investors were reported as saying that Thain's position as head of global banking, securities and wealth management was becoming increasingly unsecure.
Bank of America spokesman Robert Stickler said that Lewis flew to New York and met Thain, after which it was mutually agreed that he would resign with immediate effect.
Thain could not be reached for comment, and Merrill was unavailable for comment. Bank of America said the terms of Thain's departure would be disclosed later.
Reports said that Thain's exit was announced just a day after he bought around 84,600 Bank of America shares valued at around $483,320 which shored up his direct stake in the bank to around to 549,700 shares. The purchase had been disclosed in a US Securities and Exchange Commission (SEC) filing, reports said.
Thain's position will be filled by Brian Moynihan, the 49-year old general counsel of Bank of America and a former investment banking chief; however, global markets chief Tom Montag will report directly to CEO Lewis and will aid in chartering the bank's strategy.
Bank of America, with Lewis at the helm, had negotiated the acquisition of Thain's Merrill Lynch within less than 48 hours of discussions in mid-September 2008 (See: Bank of America buys Merrill Lynch) at a time when Lehman Brothers Holdings Inc was sinking under into bankruptcy. However, Lewis threatened to exit the deal a month ago, post shareholder votes at both companies, when the situation of Merrill's finances were found to be much worse than expected.
Lewis said regulators prevailed upon him to go through with the deal, with the government too deciding in favour of injecting $20 billion in capital a week ago while sharing in losses on the firm's $118 billion of debt.
Bank of America had announced that Merrill's losses were in the range of $15.31 billion during the fourth quarter of 2008, independent of Bank of America's own $1.79 billion quarterly loss, which was the first hit taken by BankAm in 17 years. Consequently, the bank cut its dividend to a penny a share.
On the other hand, Merrill announced bonuses towards the end of December, earlier than their usual practice, and just ahead of the $19.4 billion merger's closing on 1 January (See: Merrill CEO Thain won't let go his $10 million bonus). Now, reports said that New York Attorney General Andrew Cuomo is looking into the possibility that Merrill awarded "large, secret, last minute" bonuses. CNBC reported that Thain spent around $1.22 million redesigning his office after taking over as CEO of Merrill Lynch a year ago.
Another senior Merrill executive to have recently left the merged entity was Robert McCann, who was to head the combined brokerage.
Also, investment banking chief Greg Fleming departed from the company.
Thain was supposed to be in the running to for the post of US Treasury Secretary if US Senator John McCain had been elected President. Joining Bank of America, Thain was projected as top dog to succeed Lewis.
He was CEO of NYSE Euronext before taking the helm at Merrill Lynch. Earlier, he was chief operating officer at Goldman Sachs.