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NEW YORK - John Thain, the Merrill Lynch boss who orchestrated its fire sale to Bank of America (BoA) at the height of last autumn's financial panic, has been ousted from the company after a vicious run-in with BoA's chief executive, Ken Lewis.
Insiders said Lewis had lost confidence in Thain, amid rising unrest among Merrill's senior staff and after new allegations that Thain spent US$1.2 million ($2.3 million) to redecorate his office even as Merrill's losses were skyrocketing.
The two men have been at loggerheads since last month, when unexpected losses on Merrill Lynch's trading desks came to light and threatened to unravel the takeover.
A furious Lewis initially considered backing out of the US$50 billion deal, but the US Government agreed to provide US$20 billion in new capital and US$118 billion of guarantees to ease the strain of absorbing Merrill's battered balance sheet.
At a dramatic 11.30am showdown, a meeting lasting barely a few minutes, Thain resigned as head of the Bank of America wealth management division which has absorbed Merrill.
The rancour at the top of the company has been a major talking point on Wall St for days, and damaging leaks from inside Merrill continued yesterday, when details of Thain's expensive office redesign emerged on the news website The Daily Beast.
He signed off on the purchase of an US$87,000 rug for his personal conference room, a 19th-century credenza costing US$48,000 and a "parchment waste can" worth US$1400, among many luxury items.
The work totalled US$1.2 million, including an US$800,000 fee for the celebrity designer Michael Smith, who is redesigning the White House for the Obama family for just US$100,000.
The office makeover came a few months after Thain moved to Merrill from the New York Stock Exchange, where he was chief executive until November 2007, and the revelations yesterday represent another blow to his reputation. Last month, it emerged that he had asked for a US$10 million bonus, even after the company posted billions of dollars in writedowns on toxic mortgages and prepared to lay off thousands of staff. He withdrew his request after it was leaked to the press.
Thain was feted as a hero in September for engineering the sale to Bank of America on the same weekend that Lehman Brothers went bust. Wall Street players believed that Merrill Lynch could not have survived the financial panic that ensued.
Lewis paid in BoA shares, so the original US$50 billion price tag had shrivelled to US$24.1 billion by the time the deal closed on January 1, but many investors now believe that the deal was ill-advised while the value of Merrill Lynch's assets remained so uncertain.
In a New York lawsuit, the shareholder Steven Sklar accused BoA of failing to tell its shareholders about the record US$15.3 billion quarterly loss towards which Merrill was headed when investors gathered to vote on the deal on December 5.
Lewis is understood to feel that he never got a satisfactory explanation for the spiralling losses at Merrill as they emerged in December, undermining his relationship with Thain.
Lewis was also furious over Thain's decision to head off on a Colorado skiing holiday during that period. People close to the Merrill boss have briefed that he didn't trust BoA insiders not to leak financially sensitive information, and that he was working and contactable in Colorado.
Unrest within Merrill Lynch also helped to undermine Thain's position. In recent weeks, his deputy, Greg Fleming, quit, along with wealth management chief Robert McCann, amid speculation of differences with Thain.
Lewis has turned the Bank of America into the biggest retail bank in the US, but he has been repeatedly embarrassed by his company's ventures in investment banking.
In 2007, he said he had already "had all the fun I can stand in investment banking" after big losses on mortgage derivatives.
Last week, BoA posted a US$1.79 billion loss for the last three months of 2008 - its first quarterly loss since 1991 - and slashed its dividend to 1c.
- INDEPENDENT
