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The Unraveling of Merrill & Bank of America
Competitors are clearly trying to seize on the turmoil. Already Morgan Stanley has been busy trying to poach brokers from Merrill’s sales force, and last week’s announcement that Morgan Stanley and Citigroup are now in advanced talks to create a joint venture with their respective brokerage divisions means that Merrill’s would no longer be the largest; its 16,000 brokers would be competing against a sales force of roughly 18,000 if the deal goes through.
Inside Bank of America, senior executives tell me that Lewis is growing increasingly concerned about the management upheaval and Thain’s remarks about succession—and he isn’t happy. A spokesman for Bank of America declined to comment on Lewis’ feelings about Thain or the management losses, but he issued a statement summing up Thain’s chances of running BofA this way: “Regarding succession, Ken has said from the day the deal was announced in September that John Thain was a potential contender. He never indicated that he is the favorite and to suggest that would go beyond reality.”
As for Thain, who also declined to comment for this article, a Merrill spokeswoman said: “Your assertion is false that Mr. Thain has said he is the likely successor to Ken Lewis.”
All mergers are difficult to pull off because of the cultural differences between the firms, but the BofA/Merrill merger has been like watching a slow-moving train wreck—shares of Bank of America initially rose after the deal to $35, but have since tanked, and now are trading around $13. Much of that can be attributed to the lousy operating environment on Wall Street but also the internal conflicts. Last week, the rating agency Standard & Poor’s called McCann’s departure a “cause for concern,” adding that “Merrill's brokerage unit was likely the main attraction for [Bank of America] in completing the acquisition, and if brokerage attrition picks up, the acquisition becomes less valuable."
If you think this is nothing more than Wall Street insider baseball, think again. As the nation's largest brokerage firm, Merrill handles the investment accounts of millions of people; Bank of America holds more bank deposits than any other US bank. Keeping both of these companies stable is a key to bringing stability back to the financial markets. It’s one of the main reasons, during the weekend Lehman imploded, that officials from the Treasury and the Federal Reserve had implored Merrill to make a deal with a bank that had the wherewithal to weather future financial crises.
There has been nothing stable and confidence-building about watching these two firms work out their differences. Inside Bank of America, people I speak to say they can’t believe what they have gotten into. Merrill was forced to be sold to BofA because of investor concerns over its exposure to soured real estate debt and the business model left by former CEO Stan O’Neal. Thain took over in late 2007, but through 2008, he may have made a bad situation worse, first by downplaying the firm’s need to raise capital, and then by trying to change Merrill’s long and storied culture and by hiring top lieutenants—Tom Montag and Peter Kraus—from the outside, namely from the hated Goldman Sachs.
Kraus, for his part, began working at Merrill just weeks before the BofA merger, and left just a few weeks later, earning a bonus of $25 million for about a month’s work. (New York Attorney General Andrew Cuomo is said to be investigating the Merrill bonus controversy, including the payment to Kraus.)
Meanwhile, Montag is keeping his $34.9 million bonus and has a major position with the new firm—another sore spot inside Merrill. More recently, Thain tried to cash in as well, asking the Merrill board to grant him a $10 million bonus for 2008. After a strategic leak—the likely source, according to several senior Merrill officials, an angered board member who couldn’t believe he/she was put in such a position to approve a bonus during a year of turmoil—and intense public criticism, Thain reversed himself.
John Talks Joe
Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
The Best Job No One Wants
Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
Wall Street's Grinch Speaks
Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
Wall Street Will Walk
Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.
Everybody on CNBC is missing one major point with regard to Morgan Stanlley's interest in Smith Barney. MS should not be allowed to acquire any company wile it is the recipient of taxpayer money!!
Aw doncha wanna be a bagholder....uh I mean shareholder....sean???
A pox on both their houses. The only thing these Wall St. jerks are good at is enriching themselves with other people's money. If any of them were talented at anything else, we would not be in the mess we are in. They are very good at stealing and not at all good in managing or telling where our (stolen) money went. They make Bernie Madoff look like a small town crook. And Paulson an enabler.
Daaa Hows you doin dere Gasbag. So let me sees now, daahh yous guys pissin off anodda Wall Street firm. Gees, maybe one of dem will breka yous legs?
So, here's the point Charles. You are little more than a muckraking scumbag looking to bad mouth people as if you knew something. The simple fact of the matter is that you can barely string two sentences together. And you have the audacity to criticize others. And CNBC is equally culpable for allowing you the forum to be such a complete f*cking moron. Ironically, you call Madoff a fraud. You, my dear scumbag, are a journalistic fraud. You are a combination between Mickey Spilane and Gerry Springer. Is that why they call you Gasbagarumor? Try to add some facts to your otherwise muckraking commentary.
So, Is this censorship???? Do block all negative comments about a guy who wastes no effort to slime everybody on every story. Have some balls beast editors.
Censorship????? Block all negative comments about a guy who little more than a liar????
Hey der Gasbag. Bobby Boy here. You are such a muckraking piece of sh*t. Why CNBC keeps you around blows all of our minds.
I can't believe Charlie Gasparino is posting here.
Dude, you, Kudlow, Kneale yelling on the TV every morning is the main reason I change the station.
Grow up and stop acting like 10 year old kids.
Thought this was about the Bank of America/Merrill merger ... except it was an acquistion by BAC to save MER from bankruptcy.
Shotgun marriage? Yes. Rocky start? No doubt. But do not underestimate the acumen and merger experience of BAC and its top executives. To do so is to think that most Southerners still use outhouses.
Gasbag is a gossip spewing egotist that only wants to badmouth every institution and pile on when things are going bad. Just watch this clown on CNBC arguing with his fellow newscasters. He refuses to listen to anyones point of view. This man just wants to make people look bad at his gain. That type of person is the lowest level of life. Look at the article he just wrote about Jamie Dimon. It is yellow journalism at its best. Does anyone really think Dimon is going to be terminated? When are people going to realize he's just a dangerous rabble rouser and dismiss him for all the lies and falsehoods he's creating? But, then CNBC is full of many crackpots like Joe Kernan, Mark Haines, Erin Burnett and Becky Quick (married to the producer of her show). That's the only way GE can get anyone to watch this nonsensical volatility generating opinion show. Its not news and not reporting it an opinion show by uneducated financial suck up newscasters that want to generate buzz. All this happens because GE needs the money to offset its losses at GE Capital. If CNBC were impartial it would talk about the meltdown at GE instead of invite Jeff Immelt to lie to the public that the dividend is safe, the strategy is sound and the forecast are good. GasBag is just a small minion in the big scheme created by GE to call entertainment and opinion as hard charging muckraking news. CNBC/MSNBC are reality entertainment just like the Jon Stewart show and not hard news like Bloomberg or CNN.
Mr. Gasparino has done a thorough job of presenting the facts. No one can make this stuff up. We need investigative reporting, so the public knows the extend of greed that goes on in this country. Regarding the derogatory comments from those who defended Thain's greed, you probably have nice cushy jobs and don't know what its like to be unemployed, because of guys like Thain. Greed seems to be the hot game and there are many players who want in. Merrill Lynch is no angel. They have mislead investors for years and stole many, many millions. They have the most investor lawsuits filed against them than any other brokerage firm in history. They are experts in defrauding investors. So, why not the government? It's the usual way of doing business for Thain and his cronies-take and take some more.
Thank you.
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