What do you do when your company posts amazing losses

Post Reply
User avatar
Guysanto
Site Admin
Posts: 1289
Joined: Fri Mar 07, 2003 6:32 pm

What do you do when your company posts amazing losses

Post by Guysanto » Thu Jan 22, 2009 1:35 pm

Merrill delivered bonuses before BofA deal
By Greg Farrell and Julie MacIntosh in New York

Published: January 21 2009

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.

Last week, BofA said it would be receiving $20bn in Tarp money, in addition to the $25bn that had been earmarked for it and Merrill last year. It was then revealed that Merrill had suffered a $21.5bn operating loss in the fourth quarter.

Despite the magnitude of the losses, Merrill had set aside $15bn for 2008 compensation, a sum that was only 6 per cent lower than the total in 2007, when the investment bank's losses were smaller.

The bulk of $15bn in compensation was paid out as salary and benefits throughout the course of the year. A person familiar with the matter estimated that about $3bn to $4bn was paid out in bonuses in December.

Nancy Bush, an analyst with NAB Research, described the size of the 2008 Merrill bonus payments as “ridiculous”.

BofA said: “Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill's chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. BofA was informed of his decision.”

BofA declined to specify when Mr Thain informed the bank of his decision.

A source familiar with the matter says Mr Thain, in the weeks leading up to the December 8 compensation committee meeting, had been weighing the possibility of requesting a bonus of at least $10m for himself before ultimately deciding against such a move.


Copyright The Financial Times Limited 2009

User avatar
Guysanto
Site Admin
Posts: 1289
Joined: Fri Mar 07, 2003 6:32 pm

Post by Guysanto » Thu Jan 22, 2009 1:54 pm

What do you do when your company posts amazing losses and requests TARP money from the government ?

The answer is easy : You dole out nearly 4 billion dollars in bonuses to your executive buddies and force a situation where the taxpayer gets raped one more time.

User avatar
Guysanto
Site Admin
Posts: 1289
Joined: Fri Mar 07, 2003 6:32 pm

Post by Guysanto » Thu Jan 22, 2009 3:11 pm

Source: The Huffington Poast

The Unraveling of Merrill & Bank of America

In early 2008, just as Merrill Lynch CEO John Thain was preparing to slash expenses, cut thousands of jobs and exit businesses to fix the ailing securities firm, he was also spending company money on himself, senior people at the firm say.

According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

Big ticket items included $87,000 for an area rug, four pairs of curtains for $28,000, a pair of guest chairs for $87,000 and fabric for a "Roman Shade" for $11,000.

The other big ticket items Thain purchased include: $87,000 for an area rug in Thain's conference room and another area rug for $44,000; a "mahogany pedestal table" for $25,000; a "19th Century Credenza" in Thain's office for $68,000; a sofa for $15,000; four pairs of curtains for $28,000; a pair of guest chairs for $87,000; a "George IV Desk" for $18,000; six wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a "Roman Shade" for $11,000; a "custom coffee table" for $16,000; something called a "commode on legs" for $35,000; a "Regency Chairs" for $24,000; "40 yards of fabric for wall panels," for $5,000 and a "parchment waste can" for $1,400.

The documents also show that Thain signed off on the purchases personally. "Labor to relamp the six wall sconces" cost $3,000, and Thain authorized the payment of another $30,000 to pay the expenses Smith incurred in doing the work. Thain has hired Smith—whose celebrity client list includes Steven Spielberg, Michelle Pfeiffer, Cindy Crawford and Sir Evelyn de Rothschild—to design and decorate his private residences. They include a Manhattan apartment at 740 Park Avenue, and his 10-acre mansion in Rye, NY.

Thain was tapped to run Merrill Lynch as the firm suffered massive losses from investments tied to the depressed real estate market under his predecessor Stan O'Neal, who was ousted in late 2007. Those losses continued through 2008, forcing Thain and his management team to sell the brokerage firm to Bank of America in mid-September or face near certain liquidation as investors fearing further losses began pulling lines of credit and other financing.

Just last week, Bank of America announced that Merrill has suffered an unexpected loss of $1.79 billion for the fourth quarter of 2008, nearly collapsing BofA's purchase. Bank of America CEO Ken Lewis said that without $138 billion in government assistance, including the infusion of $20 billion from the federal government he would have pulled out of the Merrill deal, which was approved by BofA shareholders in early December.

Thain has come under pressure in recent weeks after several top executives at Merrill, including brokerage chief Bob McCann and investment banking head Greg Fleming, abruptly resigned from the firm citing differences with Thain. People close to Lewis say his relationship with Thain was further strained by the recent massive loss. Lewis himself has faced withering criticism for rushing the buy Merrill for $28 billion after less than two days of due diligence.

"I don't want to convey to you that Ken was delighted in mid-December when he found out about the losses, in fact he was pissed at Thain," one person at BofA who is close to Lewis told The Daily Beast earlier in the week. "He's not doing anything about Thain now because it isn't clear whether Thain should have told him sooner. So at least for now, Ken is sticking with Thain." (A spokeswoman for Thain denied a rumor inside Merrill that Thain is poised to step down from the firm.)

It's unclear how the disclosure of the personal expenses will effect now Thain's position. Thain signed off on the purchases in January, people close to Merrill say, when Merrill was still an independent firm and when some analysts believed the company was poised for a rebound with Thain as the new CEO. Thain came to Merrill after a largely successful stint as CEO of the New York Stock Exchange, where he converted the not-profit entity to a public company. Before that, he was a long-time executive at Goldman Sachs, where he served as former CEO Hank Paulson's No. 2.

Still others say spending so much company money on personal items shows incredibly bad judgment on the part of Thain since Merrill was in the middle of a financial crisis that ultimately led to its demise as an independent company. At the time, Thain was preaching the virtues of cost control, telling employees to reduce expenses including car services, entertainment and travel. In addition to the personal expenses on his office, documents show Thain paid his driver $230,000 for one year's work, which included the driver's $85,000 salary and bonus of $18,000, and another $128,000 in over-time pay. Drivers of top executives are often paid about half that amount.

"If this is accurate it has shades of Dennis Kozlowski's $6,000 shower curtain," said investor Doug Kass of Seabreeze Capital Management, in a reference to former Tyco CEO Dennis Kozlowski who was convicted of fraud and is serving prison time for improperly spending millions of dollars on personal items. While there is no evidence that what Thain did is either illegal or of the magnitude of the spending by Kozlowski, Kass said "Merrill was on the fence and Thain came into save the company. It's still a lot of money and there is no rationalization for something like this."


RELATED BY CHARLIE GASPARINO:
Charles Gasparino appears as a daily member of CNBC's ensemble.

Post Reply