Merrill Ex-CEO Says Bonuses Were Not Secret
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New York's Attorney General Andrew Cuomo said he's issued subpoenas to the former CEO of Merrill Lynch and a top Bank of America executive. Merrill Lynch officials admitted last week that they'd paid out several billion dollars in bonuses right before the company was sold to Bank of America, and that outraged a lot of people.
The sale was possible only after Bank of America received billions of dollars in federal bailout funds. But Merrill's former chief, John Thain, denies any wrongdoing. Here's NPR's Jim Zarroli.
JIM ZARROLI: As head of the troubled financial giant Merrill Lynch, John Thain helped broker the sale of the company to Bank of America. Then, just four months later, he was forced out of the company he'd helped create.
The pre-text for his departure was Thain's decision to pay $4 billion in bonuses to employees in late December, just days before the sale of the company. Yesterday, Thain appeared on CNBC to insist that he had discussed the bonuses with Bank of America executives before approving them.
Mr. JOHN THAIN (Former CEO, Merrill Lynch): There was complete transparency and complete agreement with Bank of America as to what levels that bonus pool would be and how it would be paid out.
ZARROLI: Thain also defended the decision to pay out so much in bonuses at a time when Merrill was losing huge amounts of money. He said Merrill had lost money in the mortgage business, but many other parts of the company were profitable. And he said the people in those divisions expect to receive bonuses.
Mr. THAIN: If you don't pay your best people you will destroy your franchise. Those best people can get jobs other places. They will leave.
ZARROLI: Bank of America officials said they couldn't do anything to stop the bonuses from being paid because they were approved before the merger was completed.
The firing of John Thain shines a light on Wall Street's unusual bonus culture. At top financial companies like Goldman Sachs, even the lowest paid employees get bonuses and for top employees, they can easily run into the million of dollars. Executive compensation consultant, Steven Hall.
Mr. STEVEN HALL (Managing Director, Steven Hall and Partners): Wall Street has a very bonus-intensive environment, and what they attempt to do is pay salary through on the lower side and the bulk of the compensation that they get comes from bonuses.
ZARROLI: But at a time when banks are receiving billions of dollars in taxpayer funds, the pay out of lavish bonuses has become a source of public indignation. So far, the Securities and Exchange Commission is reportedly investigating the Merrill matter, and today New York Attorney General Cuomo stepped into the fray. Cuomo said the way the bonuses were paid out is troubling. Jacob Frenkel is a former SEC enforcement lawyer.
Mr. JACOB FRENKEL (Shareholder, Shulman, Rogers, Gandal, Pordy and Ecker; Former SEC Enforcement Lawyer): For the first time you have a prosecutor who is saying, I find it as reprehensible, as offensive as does the general public. And for that reason, I'm going to take a posture and decide whether there may be a violation, at least, of state law.
ZARROLI: Frenkel says New York law gives state officials wide subpoena power, but he said it's not really clear that Cuomo has a case that will stand up in court nor is it clear whom authorities can really go after.
Steven Hall says there's been a lot of attention focused on the roll that Thain played in distributing bonuses, but Hall says at big companies like Merrill Lynch, decisions about bonuses are typically made by committee.
Mr. HALL: It seems odd to me that it would have just been Mr. Thain going out and deciding to issue checks all over the place on his own.
ZARROLI: But after a long career in financial services, including a stint as head of the New York Stock Exchange, Thain has suddenly become the poster boy for Wall Street excess. Part of that is because of recent stories that he paid more $1.2 million to redecorate an office suite at Merrill Lynch last year.
Thain acknowledged yesterday that the story was true, but said he'd approved the redecoration last year before the extent of Merrill's losses were clear. He also promised to reimburse the company for the money he'd spent. Jim Zarroli, NPR News, New York.