The rise and fall of Wall Street’s John Thain

A dirty, but revealing affair

By Tom Eley
24 January 2009

John Thain, the CEO of brokerage house Merrill Lynch, who guided his firm’s absorption by Bank of America, was fired yesterday by BOA head Ken Lewis after it was learned that Merrill had brought $15.31 billion in fourth quarter losses onto the bank’s balance sheet. Bank of America stock has lost 83 percent of its value since the Merrill acquisition was announced on September 21, and analysts believe that the banking giant is, for all intents and purposes, insolvent.

Merrill was one of the five major brokerage firms that only a year ago were considered pillars of the US financial system—the others being Goldman Sachs, Lehman Brothers, Bear Stearns and Morgan Stanley. Since then, Bear Stearns and Lehman Brothers have gone into liquidation, while Morgan Stanley—like Merrill—was absorbed by a large bank—Mitsubishi UFJ Financial Group of Japan.

Thain was widely celebrated for shepherding Merrill’s sale to BOA. But the honeymoon did not last long when it became known that Thain had “failed to tell the bank about mounting losses at Merrill late last year,” according to Marketwatch. Merrill’s exposure to toxic debt has thrown into doubt BOA’s own survival. It is widely assumed that Lewis sacrificed Thain in order to mollify stockholder anger—and save his own position, at least for the moment.

For now, BOA carries on only due to taxpayer handouts to the tune of $45 billion through TARP (Troubled Asset Relief Program) and billions more from the Federal Reserve. The US government has also committed itself to sharing losses on as much as $118 billion of BOA toxic assets. The bank will need tens of billions more to survive, analysts say.

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