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Updated from 2:41 p.m. EST
Bank of America's
on Thursday said former Merrill CEO John Thain is leaving the company, the latest and perhaps most severe blow in the rocky merger of the two companies.
In a statement, the company said General Counsel Brian Moynihan would replace Thain as president of Global Banking and Global Wealth and Investment Management. Thain is leaving immediately, BofA spokesman Bob Stickler said.
CEO Ken Lewis flew to New York today to talk to John Thain and it was mutually agreed that his situation was not working out and he would resign," Stickler told
Vincent Farrell Jr.:
The fall from grace is stunning for a man who was considered by some to be in line to
as BofA CEO. Thain's departure follows two other high profile defections of ex-Merrill personnel following the merger that closed Jan. 1, including COO Greg Fleming and Bob McCann, who headed Merrill's brokerage unit.
Tension between Thain and Lewis reportedly has built since the company in December learned that fourth-quarter losses at Merrill were going to be much worse than expected. Those losses almost led BofA to back out of the deal, until the federal government pledged help to absorb the hit.
last week reported a $1.79 billion fourth-quarter loss and said the government would invest an additional $20 billion, on top of an earlier $25 billion investment through the Troubled Asset Relief Program. The government also is backstopping $118 billion in loans tied to the Merrill deal.
The change in management "in no way" reflects any significant change in direction for the global banking and wealth management businesses, BofA says.
"Those organizations, which formed the heart of Merrill Lynch, will continue to serve their clients as world class financial service providers," Lewis said in the announcement. "We are quite happy with their performance since the merger."
The deal, however, has created headaches with other business lines, such as U.S. Trust, BofA's wealth management arm, says Gary Townsend, the president and CEO of Hill-Townsend Capital, an investment management firm that focuses on bank stocks. Some of BofA's "very high value" customers fear the company could be nationalized and "may choose to not hang around to see what the aftermath might be," he says.
The Merrill acquisition has imperiled Ken Lewis," says Townsend, whose firm owns preferred shares of BofA. "It has jeopardized Bank of America and its reputation."
BofA's management has allowed the company to become "overstretched" through its purchases of troubled mortgage lender
and Merrill last year, he adds.
That may ring particularly true for any investors that participated in the bank's common stock offering in early October, in which the company sold stock at $22 a share. The stock closed down 14.5% to $5.71 on Thursday.
BofA said that Tom Montag will continue to run Global Markets and will now report to Lewis, instead of Thain. Montag will also replace Thain on the Management Executive Team, which sets strategy for the company.
Alois Pirker, a senior analyst at Aite Group, writes in an email that it is now questionable "whether the acquisition of Merrill Lynch by Bank of America will turn out to be a success."
"The string of departures of senior executives is sending the wrong message through the company. Bank of America currently risks seeing its acquisition fall apart," he says.
More Merrill executives could depart and "the once well-oiled brokerage and investment banking machinery might not be able to produce the same results as before," Pirker adds. "
Any further departures of senior executives may put the company at risk."
Before taking on the job at Merrill late last year, Thain was formerly the CEO of
, where he succeeded in transforming the floor-based iconic exchange into the world's first trans-Atlantic electronic exchange. Merrill shareholders were hopeful that as the replacement for disgraced Stan O'Neal, Thain, a
veteran, would be able to right the struggling brokerage ship.
Yet Thain was increasingly being cast in poor light in recent times given that Merrill has seen the multi-billion dollar losses from toxic assets continue in 2008.
The news of Thain's departure comes as
reports that he spent $1.2 million on furnishings and decorating for his Merrill Lynch office. Reports also surfaced that Merrill accelerated the payout of year-end bonuses to just a few days before the deal was completed on Jan. 1. Merrill usually disburses bonuses at the end of January.
Thain also caused some embarrassment to BofA officials when reports circulated that he sought a bonus of as much as $10 million in December, weeks before the deal was set to close, before
and requesting that he and other top Merrill executives receive no bonus.
"Ken Lewis spent time on Wall Street himself," Townsend says. "He was not enamored of the Wall Street ilk. If nothing else, John Thain was Wall Street ilk. So this was never a good marriage, but it has been made much worse by Thain's arrogance. That has helped to drive way several managers of Merrill in the past weeks, which has hurt the organization and hurt the bank. Under the circumstances it's hard to see how Thain could stay."
Still, "whether this takes Ken Lewis out of the woods is another issue," Townsend cautions. "The acquisition of Merrill by any observation was done too expensive and without adequate diligence even though we can say the depths of the crisis" last quarter could not have been understood back in September.
Lewis called the Merrill acquisition the
in September, when it was announced after just two days of negotiations.
Jim Eckenrode, a banking and payments research analyst at TowerGroup, says it's possible that BofA could dispose of some parts of the Merrill business, given that the wealth management business was "the centerpiece of perhaps the logic for Ken Lewis to pick up Merrill at -- what at the time seemed -- a fairly good price."
The acquisition was in contrast to Lewis' comments on an October 2007 conference call when he said it was unlikely the firm would increase the size of its investment banking business and infamously remarked, "I had all the fun I can stand in investment banking at the moment."
Eckenrode said Thursday that Lewis' "instinct was probably correct."