Does John Thain -- the former head of Merrill Lynch who is now one of the richest, most reviled unemployed people in the country -- deserve our pity? And is Bank of America CEO Ken Lewis blatantly lying to shareholders? Let's review the case:
The common news story goes like this: Thain was brought in 14 months earlier from the NYSE to rescue Merrill Lynch from its bleeding balance sheet. But in the late summer of 2008, it became increasingly clear that the company didn't have the financial security to stand on its own legs, and Bank of America agreed to buy it up. In January, it was revealed that Merrill had paid out billions of dollars in bonuses and managed to produce another $15 billion loss for the quarter. The news drove BofA CEO Ken Lewis up the wall, and he forced Thain to resign.
As Thain told the WSJ, Lewis' reaction to the Merrill bonuses is phony, because he had known about them for quite a while. I'm not really interested in the he-said/he-said of Merrill's bonuses. I'm more interested in Lewis' reaction to Merrill's quarterly losses.
Two things make Lewis' shock and rage at Merrill's losses smell fishy: what we knew then and what we know now. What we knew then was that BofA had recently conducted its own due diligence stress test of Merrill's assets, and it doesn't speak very highly of the company's risk managers that they somehow miscalcuated Merrill's eventual writedown by a matter of billions that was so unacceptible, it positively demanded the head of the company to resign.