Updated from 2:32 p.m. EST
CEO John Thain took steps to rehabilitate his tarnished reputation Monday, responding in a memo to the circumstances that preceded his hasty departure from
Bank of America
Thain's shocking exit from
just three weeks after the merger came amid embarrassing accusations that the New York brokerage hid fourth-quarter losses in December, accelerated employee bonuses prior to the deal closing Jan. 1 and spent lavishly to redecorate Thain's office last year.
The revelations tarnished Thain, who as CFO at
and CEO of
prior to taking the top job at Merrill, had fashioned one of Wall Street's most impressive resumes.
According to a
report Monday, Thain struck back against these accusations in a memo addressed to Merrill's employees. In the memo, Thain said Merrill consulted with BofA about the bonus pool's size, composition and timing. He said that the total bonuses paid had fallen 41% from their 2007 levels.
Thain also addressed Merrill's $15.31 billion fourth-quarter loss, saying the losses were incurred on legacy positions and that BofA had "daily access to our p&l, our positions and are marks."
Near the close of his note, Thain said that the $1.2 million for renovations of his office also included decoration of two conference rooms and a reception area. He said that he would reimburse the company for the expense.
Tension between Thain and BofA CEO Ken Lewis reportedly had built since BofA learned in December 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.
Still, Thain said in an interview Monday afternoon on
that he was surprised to be let go by BofA. He reiterated the assertion in his memo that BofA management had knowledge of Merrill's fourth-quarter loss and blamed the bad quarter on decisions made by his predecessor, Stan O'Neal.
He also said that the bonuses awarded in December were required to retain talented employees.
"If you don't pay your best people you will destroy your franchise," he said.
on Monday also reported that the
Securities and Exchange Commission
joined New York Attorney General Andrew Cuomo in investigating BofA regarding Merrill's bonus payments. Citing sources,
also reported that Thain had insisted on paying Merrill employees bonuses even after the fourth-quarter losses became clear in mid-December.
Of his future plans, Thain said he hasn't yet given the subject much thought.
Lewis' own handling of the Merrill acquisition has caused some
about whether the BofA CEO can hold on to his job.
Bank of America told the
last week that Thain had made the decision to pay bonuses in December instead of January and it had been "informed" of the move.
However, a person familiar with Thain's actions said he had at least two conversations with BofA's chief administrative officer, J. Steele Alphin, one of the bank's most senior executives, before a Dec. 8 board meeting at which Merrill's bonus payments were approved, the
BofA on Sunday confirmed there were conversations about the bonus payments prior to the payouts.
"We never said we didn't talk with them about it. But, in the end, it was their decision and they informed us of it," according to the
Impressions of Thain began to change in early December, when he reportedly requested a $10 million 2008
. Thain subsequently withdrew his request.
Thain's memo has done little to change the negative impressions of some Wall Street observers.
"Would he have offered to pay back the redesign of that office if he weren't busted on it? I can almost bet you the answer would be no," says Robert Pavlik, chief investment strategist at Banyan Partners. "People are losing their jobs and this guy's spending that kind of money. Who is he?"
Pavlik says Thain would have been wiser to take his $15 million Merrill signing bonus, "shut up and go away." Paul Nolte, director of investments at Hinsdale Associates, says Thain's windfall called into question the era of big bonuses on Wall Street.
"I really don't buy the argument that you need to pay these people these kinds of sums," Nolte says. "We had quality management at some companies for years that really don't get paid those exorbitant sums."
Dirk van Dijk, director of research at Zacks, says no matter who knew about the bonus allocation, it is troublesome. BofA and Merrill both were among the original recipients of preferred equity investments from the federal government through the Troubled Asset Relief Program, or TARP. Together, the two firms received $25 billion in October, but BofA received a second, $20 billion investment earlier this month to help absorb the Merrill losses. The government also agreed to backstop some $118 billion in illiquid assets related to Merrill.
"Really, the term that comes to mind is fraudulent conveyance," van Dijk says about the bonuses. "They are taking billions and billions of dollars from the taxpayers to shore up their capital base. Getting it in under the wire before the deal closes
is absolutely indefensible."