Its time for me to fess up:  I was wrong about John Thain.

In the past, I have been critical about some of the comments from Thain. That they were disingenuous, misleading, and sandbagged investors. But while all of these things were mean and rotten and undesirable from any company’s management, let’s look at the bottom line: Thain sold Merrill for $25-30 per share, and got $40B for the whole enterprise. Most of his employees will keep their jobs, most of all, the company will survive. Hell, it wouldn’t surprise me to see Mother Merrill spun out as an independent entity a few years down the road, if it were worth it to Bank America (BAC) to do so.

Now, don’t get me wrong. This isn’t an endorsement of this merger. Most large acquisitions of this type are disasters. Think of AOL/TIme Warner, Travelers/Citibank, and more recently Bank America/Countrywide. But hell , its better than the alternative.

Everyone’s comparing Bear v. Lehman. But that’s the wrong comparison — it’s really Lehman v. Merrill and Fuld v. Thain. One is a goat, and one is the game winner.

A few weeks ago, many people were scratching their heads at his loss of credibility. Judged by this outcome, you can make a case that he kept his eye on what would make Merrill salable. He got enough crap off of the books to keep Mother Merrill solvent. His clearing the balance sheet paved the way for an acquisition.

Merrill could have easily been next in line after Lehman. But Thain did what Fuld wouldn’t — probably because he had no legacy investment in keeping Merrill independent. Thain wasn’t a deal maker at Goldman, but he certainly pulled a rabbit out of his hat with a pretty good deal for Merrill’s shareholders. Thain performed a magic trick to make the liability seem to disappear. He got a deal and earned his $80 mil as a banker’s fee.

This does not excuse a lot of what I called anti-shareholder behavior and statements from MER’s CEO. But Goddammit, sometimes its the big things that matter, and survival is the biggest of them all.

If I had to choose a financial sector CEO to tie my life savings to as an employee — my 401k, my ESOP, my options it wouldn’t be Dick Fuld of Lehman, or Alan Schwartz of Bear Stearns, or Martin Sullivan of AIG. It sure as hell wouldn’t be Wachovia’s Ken Thompson or CitiGroup’s Vikram Pandit or Washington Mutual’s Kerry Killinger.

Nope, it would be none of the above.

If you  had to be in a foxhole with a Broker Dealer CEO, you could do worse — a lot worse — than John Thain.

<mea culpa end>


Rinse. Lather. Repeat.  (July 29, 2008 )**ked-are.html

Actual Merrill CDO Sale: 5.47% on the Dollar  (July 29, 2008)

The Reign of Thain Has Been Anything But Plain  (August 1, 2008)

Category: Bailouts, Corporate Management, Credit, M&A, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

62 Responses to “My Mea Culpa on Thain”

  1. wally says:

    Nobody ‘earns’ and $80 million fee. NOBODY.

  2. Jeff M. says:

    Excellent point, Barry. I guess it’s better than the alternative.

    Disclaimer: The deal still needs to close before the verdict is final.

  3. leftback says:

    A scrappy, ugly 1-0 win isn’t pretty – but it is still a win.
    Winning ugly, or living to fight another day, is a great skill.

  4. mark says:

    Thain goes from villain to prince in a day. that just goes to show how it’s all a crap shoot. betting on individual stocks has just too many variable to get reliable outcome. the only thing you can buy SKF and hope you dont get screwed over by the fed.

  5. karen says:

    This deal may not go thru as shareholders on both sides need to approve. Traders are already betting it doesn’t discounting MER 25%. BAC shareholders probably are not going to want to see a probable, accompanying dividend cut, either.

  6. Mike M says:

    Yes, Thain did well. Ken Lewis, on the other hand, cost BAC shareholders a substantial sum of money.

  7. josie the berry picker says:

    kiss kiss kiss…………………if i was in a fox hole with an investment banker i would …….never mind.

  8. shoeless says:

    “Disclaimer: The deal still needs to close before the verdict is final.”

    Agree. With the stock at $19, there is tremendous deal risk at the moment. Nothing to say that BAC can’t walk away once they get a look under the hood.

  9. Rob Dawg says:

    Nothing about destroying a premier institution or destroying shareholder value or placing his personal interests in opposition with the owners of the company? Nothing about disgorging bonuses derived from inaccurate accounting? Are you intimating that survival is the new success on the street?


    BR: Unfortunately, yes.

    Remember, he showed up less than a year ago, looked at the books and discovered quite a mess.

  10. Slick says:

    Barry – a lurker who finally decided to post. Love your blog….

    I’m watching CNBC reporters and general Wall Street scumbags in their state of shock & awe – oops, make that full fledged mourning. They are really whining about what a tragedy Lehman, Merrill and AIG is while watching them melt. Few of them will admit the simple root cause for it all is greed. The Wall Street compensation plans have reward excessive risk. We’re all coin operated machines arene’t we? And in Washington, “Nero fiddled while Wall Street burned…..”

    In them meantime, these same Wall Street schmucks didn’t blinked an eye watching the wholesale deconstruction of US manufacturing over the last 15 years through globalism. To the contrary, they’ve said that “it is proof that markets drive efficiency.” But they are not saying that now – now it’s “where’s my Big Momma government when we need them?” All while the once proud US worker in Ohio retrains on how to cook a hamburger in 30 seconds….. Pretty sad situation…..I’m not real hopeful for the future…..

  11. Robert says:

    As a retired Merrill Lyncher, I am sad…
    very sad. I loved the Firm and all that it did for its employees and customers. I hope that
    one day Wall Street thinks about Main Street as Merrill used to.

    Merrill Lynch Pierce Fenner and Smith, Inc.

  12. Jeff M. says:

    Nothing about destroying a premier institution or destroying shareholder value or placing his personal interests in opposition with the owners of the company? Nothing about disgorging bonuses derived from inaccurate accounting? Are you intimating that survival is the new success on the street?

    Posted by: Rob Dawg | Sep 15, 2008 2:24:33 PM

    Rob – Where have you been for the last 26-28 years? There’s nothing new about this mentality. I’m not saying that I favor it. It just is. That’s why this country is where it is……

  13. John(2) says:

    BR: Good to see some realism, who knows maybe your benevolence might extend to Paulson and Bernanke. The general “shoot the pianist” tenor of a lot of the comment here just doesn’t recognize realities. The glee with which many seemed to greet the prospect of 25,000 people losing their jobs at LM was unreal. Thain seems to have saved some of the pie in very difficult circumstances. There’s no doubt some of the other names you mention, add Prince, O’Neill, et al deserve to be hung from some high yardarms but Thain, Paulson and Ben are on damage limitation missions. A personal word on AIG, I jumped ship when the wolves were closing in on Greenberg. It was fairly obvious he’d been cheating and once the opportunities for cheating were removed AIG couldn’t possibly produce the same returns. I wouldn’t be too hard on Sullivan who I agree I wouldn’t trust with my life savings, but he was a good soldier who was simply in over his head as the head of a company as big and complex as AIG, blame the board for putting him there.

  14. run_dmc says:

    I worked with Thain at GS, and this move on his part doesn’t suprise me at all. It is wrong to say that he wasn’t a dealmaker at GS – he was behind some very big proprietary deals there – including GS acquisition of Sumitomo. He just preferred to remain under the radar. His Euronext deal at NYSE didn’t suprise me and neither does this one.

    He is also unemotional about deals – just money, after all – seems to be his philosophy.

    Other little known or discussed thing about him – extremely dedicated family man – home by dinnertime with his kids every night. Just a little trivia

  15. rww says:

    I don’t know, Barry, he still suckered a lot of people in at a share price higher than the deal price.

  16. malabar says:

    And what about Ken Lewis? Goat or shrewdest?

    Countrywide and Merrill purchased at significant premiums to the market price.

  17. Jeff M. says:

    Time will tell on Lewis, but I vote “goat” for now. Countrywide, Lasalle and U.S. Trust (and now Merrill) will prove to be too costly and unwieldy to manage. If he can sell them off and make money off of them, then that verdict changes.

  18. ira eisman says:

    Won’t go down, not as currently stated. David Duvall of jsmineset probably got it right: Who pays $28 for something no one wants and is selling for 17.50? Just a ruse so that Lehman and Merrill didn’t both go down the same week AND BRING THE WHOLE HOUSE OF CARDS WITH THEM

  19. leftback says:

    @Karen said:

    “This deal may not go thru as shareholders on both sides need to approve. Traders are already betting it doesn’t discounting MER 25%. BAC shareholders probably are not going to want to see a probable, accompanying dividend cut, either.”

    but the can was successfully kicked down the road, eh? we are measuring existence in days here.

    I am looking at EWZ off 6-7% and DIG down 9-10%, for a trade, those are my kind of risk:reward set-ups. Looking at oil off 4% you would have to say that some hedgies are STILL choking on their excess leverage in the USO trade.

    It’s really amazing how deep some of those quant fund tools sunk themselves, perhaps they got stuck in the mud at low tide on the Mianus River. Picturesque.

  20. johnnyvee says:

    But LEH is not dead. It filed Chapter 11 to cut out the cancer and then rise from the ashes.

  21. shoeless says:

    Isn’t there an accounting change about to take place that forces two merging financial entities to value all their positions at market before the blessed event? Wouldn’t that blow this whole merger apart?

  22. Nate says:

    I still don’t see how/why BAC paid as much as they did for MER. The only thing I can think of is that they must have had serious counter-part risk in MER. All of their excuses make no sense. I have to believe even if they waited just one day, they would have gotten MER for less then 1/2 of what they paid for it.

  23. Jeff M. says:

    @Nate: The price they settled on was/is a ruse (either that or Lewis is even dumber than we thought). It won’t work.

  24. John(2) says:

    Jeff M. | Sep 15, 2008 2:51:59 PM

    Jeff look over the horizon, if Lewis rides out the storm over the next 18-24 months he’s going to be hailed as one of the financial geniuses of all time. He’s bought the the biggest mortgage lender in the country for pennies with the govt taking recourse, and he’s just bought the biggest brokerage in the country for a third of it’s peak valuation with his own paper. In five years time he’ll be regarded like Buffett.

  25. Jeff M. says:

    @John(2): I agree with you IF he can pull it off. I have my doubts about this.

    I just don’t see how he can run such an enormous, labrynth-like, bureaucratic firm well with 3 large integrations simultaneously taking place, internal competing interests, nasty politics, and turf battles where everyone is fighting for their lives. We saw how well that worked out at Citi, and that was during a strong market much of the time.

    Now if he can spruce things up a bit while the market turns around (yes, put a little “lipstick on the pig(s)”) and then spin off Merrill and others at a profit, he’ll look like genius. If not, he’ll join the likes of Fuld, Cayne, Sullivan, Prince and others on the ship of fools.

  26. Concerned Citizen says:

    It’s all a charade…both companies are worth negative numbers!

  27. karen says:

    leftback, dig doesn’t do it for me as i see oil going sub-90 for starters. another ratio out of whack was the $wtic:$gold. maybe time for the short oil long gold trade; but honestly i’m not betting on it for now… other than looking for another good entry in gdx.

  28. Concerned Citizen says:

    Karen, like during any global crisis gold is going to be the only store of value – is is durable and devisable and limited!

  29. mhm says:

    BR: Unfortunately, yes.

    Remember, he showed up less than a year ago, looked at the books and discovered quite a mess.

    Very well BR. And we can be pretty sure we (outside) don’t know 1/10th of the mess. And Thain got his money for doing what he could (buy time using his name as collateral) before it was too late. Few people will understand this…

  30. ben says:


    This is exactly why I can’t stop coming back to TBP. You are one of the few, if not the only, to ever say you might have gotten something wrong, or made statements that you later partially disagree with.

    Permanent Flexibility, much like the Doug Kass investment approach.

    I completely agree, Thain was handed a disaster and did what he needed to in order to protect ML from going under. Does anyone really believe there was a better alternative for him.

  31. Sean says:

    Barry, are you long the stocks market today? I think the decliner’s breath is at an extreme, wonder if that’s good for a bounce, though I would be happier to wait for VIX at 35.

  32. wally says:

    “And Thain got his money for doing what he could”

    No, he got shareholder money and way too much. Doing the best for shareholders should be the simple expectation, not cause for effusive praise.

  33. Blissex says:

    «I have to believe even if they waited just one day, they would have gotten MER for less then 1/2 of what they paid for it.»

    They are paying with their own stock… if MER stock halves in a panic, chances are that BAC stock goes down a lot too.

    Evidently Lewis something about how expensive is BAC stock that the rest of market doesn’t know :-).

  34. Concerned Citizen says:

    OK, the FED just asked BS and others to come up with 75 BILLION! C’mon, who’s kidding who? And where are they going to get it from? Oh, that’s right someone here mentioned the TOOTH FAIRY!

  35. Jeff M. says:

    Anyone here think we’ll get a bounce tomorrow? Real fear finally seems to be accelerating into the close…….

  36. Vermont Trader says:

    New 52 week low on SPX… 1198.16..

    enough said.

  37. mhm says:

    Wally, “way too much” is relative. As a shareholder would you prefer it the Lehman way? As investors/speculators we can sit out and watch but as a CEO of a major financial company said to be the next going under… You gotta do something and in times like this a Name counts.

  38. John(2) says:

    Jeff M. | Sep 15, 2008 3:17:24 PM

    Jeff: of course there’s a big if but that’s the nature of all big endeavors. He has however got a fairly good track record at integrating acquisitions not perfect but good and he ain’t Chuck Prince by any stretch. I know people who work in both BoA and Citi and BoA is most definitely not Citi which is still fairly shambolic I hear. I’d put the odds on him pulling it off as fairly good myself. BoA will definitely be on my list of possible buys over the next six months. Monday morning quarterbacking is an occupational disease here of course so we’ll have to wait and see. We each follow our own star.

  39. SR says:

    Senor Barry…..

    You NEVER need to appologise as the quality of this site redeems anything you make think you have not surpassed (in my viewpoint)

    Btw Not a word about Meridith Whitney and her unassailable analysis?

    I would trust her as to where NOT to go…

    As always, your mileage may vary…

    Addendum: How about some prayers for the multilples of LEH employees who are venturing into a hostile job market (with not much of their 401k left intact?

  40. Steve Barry says:

    Dow still moving…down 500 now. QID performed well, up 6.9% with QQQQ down 3%.

    S&P closed below 1200, so my target for it is now 850, a 30% drop. Nasdaq should drop around 40% and QID, fingers crossed, if it performs like designed, will gain around 80%. I have held it, through thick and thin for a year and a half.

    Can’t wait to watch Cramer weasel out of his bottom call and see Kudlow…I expect Larry to cry on air before this is over.

  41. John(2) says:

    SR | Sep 15, 2008 4:04:09 PM

    Good to hear someone is sparing a thought for these poor buggers at LM. My contacts tell me parts of the business are still functioning it’s just hard to tell which parts. Probably three quarters of the people there are going to be on the street and a goodly number at Merrill. Barry’s right Thain rescued what he could and probably saved three quarters of the jobs there. I see SP and Dow are both off about 4.5% the same as old Europe. Tomorrow? Any guesses.

  42. hs says:

    Great post Barry, and I agree with you completely; Thain had to do what he had to do, no ifs-ands-or-buts about it. Now with Bank of America absorbing Merrill, I question the future of BAC. What with all the banks going downhill, i’m not sure what the future holds for BAC.

    I did come across this great article about rising bank failures, hopefully BAC isn’t next.

    Here’s the link for anyone who’s interested…

  43. leftback says:

    Lots of index selling today – when you see all the sectors down about the same amount? Not exactly capitulation but broad, intense selling nevertheless. If I had to guess I would say this is another trading bottom (today or tomorrow) going into expiration. Wonder what Barry thinks of this?

    @Vermont Trader: remember that we did hit SPX 1175 at some point in the year, although maybe not for a close, so the jury is still out until we see tomorrow’s reaction to today’s action.

    @Karen: I did some DIG and some EWZ, we’ll see if they bounce. Great call on gold last week, by the way. If no rate cut, does gold sell off? Just a thought?

    My guess is this puke-up wasn’t big and nasty enough to get the public’s attention, they never panic until it is really too late.

    Somewhere Steve Barry must be smiling…

  44. wally says:

    Wally, “way too much” is relative.”

    Absolutely! Relative to what normal people make, to what a man’s time and smarts are worth, to what effort and work is put out. The reason he got what he did is simple: crony capitalism. Conspire to take shareholder money and give it to the pals. I think Lehman’s $9.4 BILLION out in bonus money in 2007 should make that simple point. It killed the company and everybody’s jobs.

  45. Steve Barry says:


    Today was a long time coming…problem for bulls is that market put/call 10 day MA is only 1.05…has to really get to 1.3 to offer any short-term bottom. Other problem is two investment baks are left and I think soon there will be one (GS).

    Nasdaq ==> Smoldering crater

  46. Angelo Killinger says:

    Herb and Marion Sandler are the smartest people in the room. They cashed out ahead of the shitstorm at top dollar. They knew it was comming – but doubtful they thought it would be as bad as this. But the fact is they got top buck for their company, when their competitors will be lucky to get out alive.

  47. anon says:


    New Chief Economist Not Concerned Over Housing Bubble

    March 10th, 2006

  48. GreenAB says:

    this shotgun marriage is a simple trick two survive of two smart businessmen.

    by merging (officially buying) the newly created company truely gets TOO BIG TOO FAIL!

    there´s no other reason behind this nonsense move.

  49. nmewn says:

    Been waitin on that…the mea culpa.

    O’Neal made it a disaster…Thain had a tough row to hoe…he did the best he could under trying circumstances…he kept his eye on the Big Picture…sorry…couldn’t resist.

    Takes a Big Man Barry…your stock just doubled with me…LOL.

  50. Gloomy says:


    All Thain did was delay Merrill’s day of reckoning. In a ringing endorsement of the deal by the market, stock of Bank of America dropped over 20%. How much more will BofA need to drop before a shareholder revolt ensues? Failing such a revolt, Bank of America will be bankrupt or nationalized in a few months or sooner and Merrill will come to its well deserved end.

  51. Matt Rafat says:

    This is what I like about Barry–he’s fine with changing an opinion when new facts present themselves. And that capitulation he was talking about? Whoa, nelly.

  52. Donkei says:

    In the Great Depression, the Hoover Administration let fail a bank called the “Bank of the United States”. It was not a wise move, if for no other reason than it sounded like the US itself was failing.

    How ’bout a bank named “Bank of America”?

  53. bonghiteric says:

    @ Angelo Killinger:
    Great handle, that’s funny.

    BTW, Hank Paulson, Summer 2007 called… it wants “its contained” back.

  54. ben says:

    Steve Barry

    like your posts, good call on qid but I’ve never been able to hold any ultrashort for a year and half.

    @Karen, yes nice call on gold, also discussed NEM, I’m going to buy CHK tom.

  55. Mark W says:

    The one who REALLY should get some public kudos is Larry Fink who had the good sense to ask for full disclosure last year when he interviewed for the Merrill CEO spot. Merrill decided to keep the tinted windows on the limo, and Thain wound up in the seat.

    I thought Barry would have recalled his own psot on the subject….

  56. Robert says:

    Did anyone see Robert Steel, CEO of Wachovia, on Cramer this evening.
    Steel sounded so credible, so good-looking, so tall, so former Treasury oficial, so former Goldman Sachs…. so bullish on WB ????
    WB is either the buy of a lifetime or Steel is a Mel Karmazin on steriods.

  57. Nobody ‘earns’ and $80 million fee. NOBODY.

    Wally said that – and Wally is on top of things

    Well, Wally, the lawyers, accountants and agents will make more than 80 million for moving the paper work – At least Thane did something for Merrill – 50 billion for a cost of 80 million pretty cheap commission.

    wally – get your head up to date

  58. mephisto says:

    I second the comments on Bob Steel. What is “The Deal with Steel?” Anyone know?

    To me, it’s not that his image is so great, but he has such vast frickin experience at the Treasury and so well connect to Goldman, I can’t imagine he is just there to f–k it all up. He seems like more of a results oriented guy.

    Anyone got le poop?

  59. Nate says:

    Thanks for all the replies to my question. This still does not make sense to me. The HUGE premium in a distressed market and to do it the weekend of LEH filing CH-11. A take-under today or tomorrow I could see, but not at all how it unfolded. Something does not add up!

  60. Aidan says:

    Sounds like you were threatened with libel….fox hole?

  61. gb says:

    More fodder for the “perverse incentives” logic?

    Seems to me that another bullet point to add to “The Terrible Lessons of Bear Stearns” ( is “When competition becomes severe/life-threatening, keep everyone (competitors, customers, the public, shareholders) in the dark.”

  62. Bobef says:

    Good post. As an aside, our creator God holds us in existence from moment to moment. The casual use of His name in the post (e.g., G__damnit) is not helpful.