Financial Times, January 26, 2009 article
BofA had role in Merrill bonuses Bank of America played a role in Merrill Lynch’s controversial decision to pay $4bn in bonuses in December just as mounting losses were threatening to derail BofA’s takeover of the Wall Street firm, according to people close to the situation. BofA has said that the payment of $4bn in compensation in a fourth quarter in which Merrill racked up $15bn in losses was sanctioned by John Thain, Merrill’s chief executive. Ken Lewis, BofA’s embattled chief executive, ousted Mr Thain on Thursday after news of the bonus payments appeared in the Financial Times. BofA told the FT last week that Mr Thain had made the decision to pay bonuses in December instead of January and it had been “informed” of the move. The bank said Merrill was an independent company until the deal closed on January 1. However, a person familiar with Mr Thain’s actions said the ousted chief had at least two conversations with BofA’s chief administrative officer, J. Steele Alphin, one of the bank’s most senior executives, before a December 8 board meeting at which Merrill’s bonus payments were approved. This person said Mr Alphin recommended, and Mr Thain accepted, a proposal to change Merrill’s incentive compensation mix – 60 per cent cash and 40 per cent stock – to conform with BofA’s system of 70 per cent cash and 30 per cent stock. The stock portion of the payouts was made January 2, the day after the deal closed, in BofA stock. In addition, Andrea Smith, a senior executive in BofA’s human resource department, had been seconded to Merrill since September, according to people close to the situation. BofA on Sunday confirmed there were conversations about the bonus payments prior to the pay-outs: “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.” BofA has also said it learnt of Merrill’s mounting losses in the second week of December. Merrill insiders said the investment bank supplied BofA with daily profit and loss statements starting in November. It was unclear whether those statements detailed Merrill’s trading positions and their daily losses. In the wake of Mr Thain’s dismissal last week, sales and trading chief Tom Montag, his top deputy, received a promotion. Mr Montag’s department was responsible for at least half of Merrill’s $15bn loss in the fourth quarter. Although Mr Thain was replaced by Brian Moynihan, BofA’s general counsel, it was announced that Mr Montag would now report directly to Mr Lewis, BofA’s chief executive. People familiar with the matter point out that a clause in Mr Montag’s contract specifies that, if his authority was diminished in certain ways, he would be allowed to leave the bank with a hefty severance package.
Copyright The Financial Times Limited 2009 |
