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The Prisoners Dilemma: John Thain vs Ken Lewis

Posted By Barry Ritholtz On April 27, 2009 @ 7:25 am In Bailouts,Legal,M&A,Regulation,Taxes and Policy | Comments Disabled

“Regulators are supposed to tell you to obey the law, not to disobey the law. If you’re the CEO, your first obligation is not to your regulator, it’s to your institution and shareholders.”

-Jonathan R. Macey [1], deputy dean of Yale Law School

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I have not commented on the allegations by Bank of America CEO Ken Lewis that he was forced into making a disastrous acquisition of Merrill Lynch.

Why? Because they appeared to me be utter and shameless nonsense, an attempt to worm out of responsibility.  Indeed, the very statements by Bank of America CEO Ken Lewis appeared to be excuse-making for a lousy acquisition (which Bof A has quite the history of). Its the sort of weasely responsibility evading CEO speak we have come to expect these days. To be blunt, I was astonished anyone took them very seriously.

Yet they were taken seriously, by quite a few people — including a huge front page Wall Street Journal article [1]. The mere accusation means that we are likely to see former Treasury Secretary Hank Paulson — a major cause of the credit crisis and a horrific bailout steward — up for a major grilling in Congress.

This morning, in the same WSJ venue [2], we learn that many of the statements Ken Lewis made under oath were directly contradicted by former Merrill CEO John Thain (but not under oath). Thain claims these understandings were in in writing.

One of these  two CEOs is lying, and if its the guy who was doing so in sworn testimony, he may have a very big problem on his hands.

Here’s the WSJ on Thain’s claims:

“In an effort to restore his sullied reputation, the 53-year-old Mr. Thain is striking back at Bank of America Corp. He claims the bank lied about its role in the giant bonuses and losses at Merrill Lynch & Co. that cost Mr. Thain his job in January, after Bank of America bought the troubled brokerage.

“Getting fired is one thing. But nobody has the right to say things that they know aren’t true,” said Mr. Thain, who had been Merrill’s chief executive, during one of a series of interviews with The Wall Street Journal.

Charlotte, N.C.-based Bank of America has stated publicly that the decision to pay bonuses to Merrill employees in December rather than in January, when they usually go out, was solely Mr. Thain’s. News of the $3.62 billion in bonuses sparked a public outcry, badly damaging Mr. Thain’s reputation.

But Mr. Thain says that he and Bank of America Chief Executive Kenneth Lewis agreed in writing that the bonuses could be paid before Bank of America’s acquisition of Merrill closed, which led to the early payments. “The suggestion Bank of America was not heavily involved in this process, and that I alone made these decisions, is simply not true,” he says.

Bank of America has painted a different picture than Mr. Thain’s of critical decisions that were made last fall. It has cast him as the person responsible for distributing billions of dollars of bonus money despite Merrill’s huge losses. Before Mr. Thain’s recent discussions with the Journal, he had refrained from commenting in depth. (emphasis added)

This is beginning to look like a variation of the prisoners dilemma: Both parties would probably be better off if everyone kept quiet, but each individual party is better off confessing than remaining silent.

And both of these guys cannot be telling the truth . . .

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Sources:
Thain Fires Back at Bank of America [3]
SUSANNE CRAIG
WSJ, April 27, 2009

http://online.wsj.com/article/SB124080394182958429.html

Lewis Testifies U.S. Urged Silence on Deal [1]
Liz Rappaport
WSJ, April 23, 2009

http://online.wsj.com/article/SB124045610029046349.html

See also:
Paulson’s ‘Gift’ to Lewis Delivered at Gunpoint [4]
Caroline Baum
Bloomberg, April 27 2009

http://www.bloomberg.com/apps/news?pid=email_en&sid=aBVn7H6K4LTc

U.S. Role Questioned on Merrill [5]  
ZACHERY KOUWE
NYT, April 23, 2009

http://www.nytimes.com/2009/04/24/business/24cuomo.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/04/the-prisoners-dilemma-john-thain-vs-ken-lewis/

URLs in this post:

[1] Jonathan R. Macey: http://online.wsj.com/article/SB124045610029046349.html

[2] WSJ venue: http://online.wsj.com/article/SB124080394182958429.html

[3] Thain Fires Back at Bank of America: http://www.ritholtz.com/blog http://online.wsj.com/article/SB124080394182958429.html

[4] Paulson’s ‘Gift’ to Lewis Delivered at Gunpoint: http://www.ritholtz.com/blog http://www.bloomberg.com/apps/news?pid=email_en&sid=aBVn7H6K4LTc

[5] U.S. Role Questioned on Merrill: http://www.nytimes.com/2009/04/24/business/24cuomo.html

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