BofA had role in Merrill bonuses
ByGreg Farrell and Francesco
Guerrera in New York
Published: January 25 2009 23:32 | Last updated: January 25 2009 23:32
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.
Financial Times Limited 2009