In John Thain’s world you get paid tens of millions of dollars. You spend $1 million on a new office. You expect a $10 million bonus after your stock falls 70%. You think you’re a hero when you mislead another company into buying out your firm at a massive premium. You have to wonder what planet this man is living on.
In case you don’t know, John Thain is the former CEO of Merrill Lynch. He became CEO in November of 2007 and to his defense he inherited one heck of a mess. But that does not justify his actions. Over the course of the next 18 months John Thain lied to his shareholders on dozens of different occasions while being compensated $50 million per year. In July of 2008 he told his shareholders:
“Right now we believe that we are in a very comfortable spot in terms of our capital.”
By this point the credit crisis wheels were well in motion. Merrill Lynch stock was down 70% and the company was widely known as one of the most toxic on Wall Street. But somehow this MIT and Harvard graduate put on a straight face and told his investors the company was in a strong position. (By the way, you can find 10 different quotes from Thain on the strength of MER’s balance sheet here.) Thain’s behavior spirals out of control while the market tanks. He continues to maintain the position that MER’s capital position is strong even though the firm is widely thought to be insolvent.
After telling shareholders just weeks earlier that the company was in a strong position, Thain, inexplicably approaches Bank of America‘s Ken Lewis over the weekend of September 14th to discuss an urgent merger. The following day B of A announces their takeover of Merrill Lynch. Thain is celebrated as a hero for selling a firm that lost 70% of its value. I’m not sure which is worse: the idocy of Ken Lewis (the same man who bought Countrywide before any of this was even that bad) or the shameless lies of John Thain.
In December, Thain was baffled when rumors spread that he might not get his $10 million bonus. for selling Merrill at a now 80% discount to its 52 week high. He later agreed not to receive payment. And just when you don’t think things can get any worse we find out that Thain spent $1.2 million on his new office at Merrill. Clearly, he thought their capital position was strong. Strong enough for Merrill shareholders to buy him a new office….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.