Merrill's Other Big Payout

Posted by: Matthew Goldstein on January 23, 2009

When your company is staring at a $15 billion loss in the face, every dollar saved through cost-cutting and scrimping counts. That’s a big reason there’s so much outrage over the news that former Merrill Lynch CEO John Thain signed off on some $4 billion in bonuses for top executives on the eve of the brokerage’s merger with Bank of America earlier this month.

But that wasn’t the only sizeable payout Merrill made in the weeks leading up to the closing of the deal with BofA. On Nov. 13, just three weeks before Merrill shareholders voted to approve the merger with BofA, Merrill’s former board approved the payment of 35 cent-a-share dividend to all common stockholders. The payout drained another $565 million from Merrill’s coffers at a time when the firm should have been building up cash, instead of spreading it around.

Now sure, one could argue that if Merrill had slashed the dividend to the bone, the brokerage’s stockholders may not have voted for the merger with BofA. But Merrill’s dividend payout came just weeks after Bofa announced on Oct. 6 it was slashing its dividend in half to 32 cents-a-share—a move the bank said would save it some $1.4 billion in cash each quarter. (The bank has since cut the dividend to a penny-a-share).

If nothing else, Thain & Co. should have taken a hatchet to Merrill’s dividend—especially after the pounding the financial system took in the wake of the Lehman Brothers bankruptcy filing on Sept. 15. By the time, Merrill’s board approved the dividend on Oct. 27, the federal government was well on its way towards pouring hundreds of billions of dollars in bailout money into the financial systems. There’s no evidence that BofA CEO Ken Lewis raised any private objections to Merrill paying a dividend on the eve of the merger vote. A spokesman for the bank couldn’t be reached for comment.

The storyline that’s now coming out from the tumultuous Merrill/BofA merger is that the magnitude of the fourth-quarter losses at the brokerage weren’t known until after the Merrill shareholders approved the deal on Dec. 5. But people across Wall Street aren’t buying that since so many asset classes—including corporate loans, convertible bonds and securities backed by commercial real estate—all got pounded immediately after Lehman collapsed.

Anyone with inside knowledge of Merrill’s investment portfolio could have seen that the brokerage’s investments in corporate loans and commercial real estate-related securities would all take a hit in the fourth-quarter. And that includes Thain & Co., as well as Lewis’ team at BofA, which was conducting its due diligence on Merrill at the time.

If nothing else, Merrill should have been moving to preserve as much cash as possible. And that means it should have forgone the awarding of bonuses, as well as dividends to common stockholders in the days leading up to merger with BofA.

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Reader Comments

Adams

January 23, 2009 01:53 PM

Won't these guys ever learn. They are supposedly so smart. Thain..and all the thugs on Wall Street..are the ones that got us into this global mess...and they're trying to plunder what's left as they slink out the door.

Arrogance that knows no bounds...and a cpmplete absence of any values. Quite a combination! His mother would be proud!!

Joe

January 23, 2009 02:01 PM

Bernie Madoff had $170 million left and was ready to dole it out before he got arrested. How is Thain any different?

mag

January 23, 2009 02:07 PM

the total merill farce credit goes to John Thain. He should have known about Merill's fourth quarter's. Every CEO 's mind is on their next quarter and what to do about it how to cut costs like the way GOOGle did it from last six months plan for yday's result. Its awe- surprising to know the prestigious John Thain didnt think about it...

Nguyen

January 23, 2009 02:52 PM

Thain’s final action is devastating and outrageous. I think many American CEOs have been trying to cheat their investors and corrupt their companies for their own luxury lives. The Japanese CEO lives to build the image of their destiny such as Toyota while American CEOs climb to the ladder in order to corrupt more money for them. John Thain is an obvious example of evil in corporate America. His company incurred a huge debt, but he tried to make money from his losing shareholders. The University and School have to bring back ethic courses on Corporate Governance to save America. Money has ruined recent generation of CEOs.

Menelik

January 23, 2009 03:45 PM

This is the American way with its Christian self.

bob

January 23, 2009 03:48 PM

they are all scum bags. That may be harsh but it is true

wang

January 23, 2009 03:52 PM

$4 Billions for the executives vs $565 million to all the share holders. What a bunch of thieves! How can one has any confidence on American corporations anymore.

Eddie Zalez

January 23, 2009 03:57 PM

Do any of these guys ever learn? No, because white-collar crime pays big time in America. They never go to jail, only the little people pay taxes and go to jail.

MJ Mann

January 23, 2009 04:05 PM

Adam is right! Arrogance knows no bounds!
I'm reminded what my grandmother used to say, "absolute greed corrupts absolutely."
Thain's actions are outrageous. He took advantage of his investors, BofA, and the government. Although the later two should have known better! We have educated a generation of executives to place power and greed above all else. Shameful...

John Pileggi

January 23, 2009 04:15 PM

I have found that a problem with brilliant people is that they have a knack for convincing themselves of the validity of an position long after common sense dictates the position is untenable. Whether it was retaining talent, pleasing stockholders or some other reasonably sounding thesis, Merrill and its Chief seem to have convinced themselves that the sky was not indeed falling, and if it was, the Merrill airship needed to do some work. The simple reality is that the environment should have guided the actions; conserve cash, cut the dividend, hunker down and show some sense of loyalty to the new owners who have bailed you out.

Marty

January 23, 2009 04:23 PM

All of these "top execs" should have to pay every penny of unearned bonus back. Not only the thieves from Merrill, all of them. Trust me, in the real world, no one in a company that is losing money, let alone billions, is getting any bonus. If they don't have the money, they can do what the people who's money they are stealing have to do, borrow it and pay interest and penalties. Now let's talk about how much jail time theives are supposed to get.... I believe that robbing banks is still a crime.

Dave

January 23, 2009 04:32 PM

There Goes Our Money

Please contact your congressman/woman and senator and ask how THEY are going to get “Our” money back.

They approved this mess.

All they say is what a shame.

They are a bunch of WHIMPS.

We need action.

Send some fire their way.

tg

January 23, 2009 04:38 PM

we, the taxpayer/shareholder, should be able to find some grounds justifying the mother of all class action lawsuits against thain and the old board.

charles

January 23, 2009 04:46 PM

on top pf all that some brokers were given "retention bonuses"--while the customers enjoyed a 30 to 40 % reduction in value.

there is no sense of right and wrong in a culture that permits such actions to take place

Charon Pilgrim

January 23, 2009 04:53 PM

I certainly agree with all the comments posted; however, I would like to know how the CEOs getting bonuses and the financial woes are playing out in these business schools and if the new game is to teach the new CEOs to come out of these business schools how to much more sneaky so no one knows that you were playing in the mud. But as the old timers would say, "Every dog has his day" and I wait.

BCR

January 23, 2009 04:53 PM

Getting it back is not as easy as it sounds. My bet is that this bonus money, as well as Thaine's personal accounts are all located far offshore, in numbered accounts that no one will ever find. Further, these "top performers" who were paid these bonuses are probably retired. I'm with Dave. Call Congress, let's get a refund now, before there's no money left.

mike

January 23, 2009 04:58 PM

Thain Should be prosecuted. It doesn't matter if the charges are bogus or trumped up. A jury will convict him purely out of spite.

floyd herring

January 23, 2009 04:58 PM

and the sad part of all of this is NO
ONE IS IN JAIL.OUR GOVERMENT DOESN;T GIVE A RIP ABOUT US AND THAT INCLUDES
THE NEW ARRIVALS IN WASHINGTON.THAT IS THE WAY I FEEL.YOU CAN'T GET A DECENT
INTREST RATE ON SAVINGS SO WHAT ARE THE SENIORS SUPPOSED TO LIVE ON? THEY SAVED ALL THE MONEY THEY COULD JUST FOR THAT PUPORSE.I AM STILL AN AMERICAN BUT I AM SLIPING. FLOYD

BCR

January 23, 2009 05:05 PM

Can the taxpayer's file a class action lawsuit against Congress?

Ray

January 23, 2009 05:24 PM

This is, as the book by Dick Morris is titled 'The Fleecing of America". What should really hit all of us is that the systems in place, be it legal or governance, are unwilling or unable to deal with this blatant greed and corruption by the few elite Wall Street power brokers. Equal Justice for all? give me a break...

RSA

January 23, 2009 05:50 PM

Why can't BoA indirectly retrieve the latest bonus payout to ML executives and managers on Dec. 29th , just 3 days prior to coming under the BoA umbrella? BoA can easily trace back who all received those bonuses from ML's books and declare that those execs and managers either have to pay it back immediately to save their jobs or not pay them bonuses for the next several years or however long it takes to retrieve/negate those bonus payments. As a taxpayer, why am I paying those ML bastards?

Jack

January 23, 2009 06:17 PM

Shareholders should demand an investigation of all the people who joined with clauses in their contract of "if firm is bought by another company" and made off with over 10M for a week or two. I would say Thain was working at having the firm sold and had his buddies join with such contracts and then they all made millions without doing anything. Daylight robbery which is allowed when you are in such positions

jamesinflorida

January 23, 2009 06:29 PM

Which one of the enforcement types is going to take them all on, we thought Enron was bad, that was chump change. He should be prosecuted not just fired!

Damian Palmares

January 23, 2009 07:05 PM

Floyd look to CD's, at least you can make a return of some profit and your money at the end...It really depends on what amount of risk you are willing to take. There's still stable companies out there to invest in but at this point, until it has been all broken down and restructured, it's hard to tell where your money will be safe. Nguyen, I fully agree with you.

Dave G

January 23, 2009 07:44 PM

You have to give the senior execs at Merril credit, they did exactly what was in their and their stockholder's interest - they ejected as much money from the sinking ship before it went under. Now, I agree that the US govt, on behalf of the taxpayer, should sue and attempt to recover every ill-gotten penny, not only from Merril, but every other business that can be shown to have moved money out before receiving bailout money.

Sjaakb

January 23, 2009 07:54 PM

Obama is closing Gitmo... As alternative use, why not "park" creeps like Thain, Madoff and the alike there?

ray

January 23, 2009 08:41 PM

The money Merrill handed out is essentially tax payer's money. The lawmakers should enact an strict clawback law to get all those bonus back and throw those thieves into jail.

Damian Palmares

January 23, 2009 08:41 PM

Why even bring religion into it menelik...it has absolutely nothing to do with being a christian. Please take your ignorant comments elsewhere.

Damian Palmares

January 23, 2009 08:45 PM

Why even bring religion into it menelik...it has absolutely nothing to do with being a christian. Please take your ignorant comments elsewhere.

Damian Palmares

January 23, 2009 08:49 PM

That might be a good idea BCR...I dont know if my other comment went through or not so i will resend. They will pay Marty..in the end..have we become so corrupt that this fool that brought BILLIONS of dollars of losses for the year he was CEO at Merril, then try to hand out bonuses after all the losses and think that we would keep falling for their BS? Have we become so corrupt that while these losses were happening, he has the audacity to buy a $1400 wastebasket, along with the 1 million dollar renovation to his office? Who is this guy? He's being investigated now and I hope to God we have the balls to charge him. Sorry, but it's the truth.

Damian Palmares

January 23, 2009 08:53 PM

If they don't keep their moral and ethical values in place then what will happen is there will be so much government regulation in place, it wont be fair for everyone, but this is unbelievable. And we are supposed to look at CEO's as role models? What do you think this does to the younger generations growing up? It poisons them. This is wrong and it needs to stop now before it's too late.

Bobby

January 23, 2009 11:04 PM

Thain, Madoff and 99% of Wall Street CEO's should not go to jail. Nope. We need to send a message to these thieves and the thieve wannabes. They deserve to be executed. Society doesnt need this type of scum.

angry1

January 23, 2009 11:25 PM

Barney Frank where are you?

cup

January 23, 2009 11:34 PM

This is the exact reason that the bailout plan will not work. This is a system problem, not a single company problem. The sad reality is that nothing will be done to fix it because all these activities have been done under a legal framework that they only be seen as excessive but not crimes.

You can call this as legalized robberies.

In Obama's inauguration speech, he did not mention the word "demacracy" a single time. Only great Presidents Washington, Adams, Lincoln did the same in the past. Maybe Obama knows better that "demacracy" can not fix these CEO problems.

Acrobat

January 23, 2009 11:54 PM

John Thain has shown himself to be a true Marie Antoinette of our times. He completely lost sight (as many Wall St. CEOs have done) of the fact that he was a STEWARD -- invested with authority by a collective of stockholders to be responsible and prudent in leading their company -- and NOT KING of all he surveys, free to do as he pleases.

Thank god Lewis gave him the ax. Let's hope he (Lewis) has more ethical values than Thain does.

(http://marieantoinetteandme.blogspot.com/

Making Money Elsewhere

January 27, 2009 12:22 PM

I used to be a Merrill guy, but left due to the underlying issues, which now are so painfully public. Last summer after Thain came on, we were being told internally "expect no more write downs"...but at the next quarterly earnings, low-and-behold, $5 billion dollar write down. The writing was on the wall...what a shame.

say what

January 27, 2009 02:03 PM

What role do the boards of public companies play in these messes? They and the top management teams should all be subject to prosecution for their greed, negligance and incompetence.
I like the idea of using Gitmo for all the coprorate extortionists that have trashed the global economy.

bernard arkules

January 27, 2009 05:10 PM

Corporate America is a bunch of fiefdoms run for the benefit of senior management. Thanks to the rules of the SEC it is not possible to start a grassroots rebellion to expel the rulers even when their gluttony is not hidden.

Fatima Peter

January 27, 2009 05:21 PM

This is the reason that the bailout plan is not going to work. The big guys will squander tax-payer's money by giving themselves and their buddies big bonuses. If these guys don't give back the bonuses, I think they should be tried for financial crime. While we are at it, we should make penalties for financial crimes greater by how many lives that damaged.

Bruce H

January 28, 2009 04:28 PM

Ethics courses for MBA students will not help. One way to deter thoughtful anticipated deliberate premeditated criminal activity is with certain and draconian punishment. That will deter most such calculated behavior. It won't deter the insane-but they are not likely to be financial managers. Again-Certain-No exceptions. Explicit prosecutorial rules. Trial by jury with a simple majority for conviction. Punishment-Certain. Explicit non-discretionary sentencing rules. Restricted right of appeal-only for procedural issues. Confiscation of wealth from the individual board, auditors and right to sue regulatory authorities-all as decided by the jury. Lifetime ban upon conviction from anything other than a sole-proprietor business and with no interstate commerce transactions. Lifetime ban from serving as an officer of a corporation. Lifetime ban from working in any federally regulated financial or securities related business. The preceding sounds pretty draconian. It is supposed to-it is to act as a deterrent. None of it will prevent a honest person from thriving as a competent CEO. Big bonus for competent honest services to the investors. But the possible punishments will deter the CEO’s thieving temptation to loot the firm.

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