And so now we have our Dennis Kozlowski, our Leona Helmsley of the current crisis.
Thanks to Charlie Gasparino of CNBC (cross-posted at The Daily Beast), John Thain will go down in infamy as the poster boy (at least until someone more gluttonous comes along) of the Wipeout of ‘07, ‘08, ‘09, and however many more years it takes to hit bottom.
Until now the bad guy has been Bernie Madoff, which just hasn’t been quite right. Madoff is an old-style con man. He just straight-up stole money from folks.
The current problem is more insidious. It’s the credit-ratings agency that rubber-stamped “AAA” on mounds of subprime mortgage securities because, after all, they were being paid by their creators on Wall Street. It’s the mortgage companies who foisted those subprime notes on unsophisticated borrowers. It’s the Wall Street executives who destroyed their shareholders’ wealth with a second Gilded Age of astronomical bonuses that skewed incentives to the short-term.
And while Angelo Mozilo or whoever the head of S&P was might be a more accurate figurehead, this is what gets on shows like “Extra” and seeps into the public consciousness:
According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.
Big ticket items included $87,000 for an area rug, four pairs of curtains for $28,000, a pair of guest chairs for $87,000 and fabric for a “Roman Shade” for $11,000.
The other big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs of curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; six wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of fabric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.
The documents also show that Thain signed off on the purchases personally. “Labor to relamp the six wall sconces” cost $3,000, and Thain authorized the payment of another $30,000 to pay the expenses Smith incurred in doing the work.
A liveried servant bearing a silver platter of freshly-cooked shrimps would be required to attend Leona’s early morning sessions in the swimming pool; at the end of each lap the servant would hand her a shrimp to swallow (“Feed Mama,” she would cry, as if she were a performing marine mammal).
Thain does have some competition: Remember Stephen Schwarzman’s $3 million birthday party? But Schwarzman at least used his own money and, anyway, didn’t even have public shareholders at the time.
Not coincidentally, Gasparino’s story came out just hours before Bank of America pushed Thain from its derailing train.
The Wall Street Journal gets inside the C-suite to report how it went down:
The conversation lasted less than 15 minutes. Mr. Thain agreed to step down as head of the combined company’s global banking and wealth-management operations. “Ken would not have left that meeting without a resignation,” said one person familiar with Mr. Lewis’s thinking…
Mr. Thain lost Mr. Lewis’s confidence, this person says, beginning in early December, when Mr. Lewis learned of big fourth-quarter losses at Merrill from a transition team handling the merger, rather than from Mr. Thain himself.
A special tip of the hat to the Journal and its Susanne Craig, who put a nail in Thain’s coffin last month when they first reported Thain’s machinations to get a $10 million bonus for the year. And, hey, why not in his mind? He’d just sold a dog of a company to a “healthy” bank, saving his shareholders billions of dollars. What’s a few million bucks for that?
The problems for Thain will now become swiftly apparent. Ambitious attorneys general will be salivating over getting him in the hoosegow. And how might they do that? You think they might wonder if there was some misrepresentation on the part of Thain and Merrill in their negotiations with Ken Lewis and Bank of America? Just a little bit? I mean, the company lost $21.5 billion in the fourth quarter alone and dragged B of A in just three months from healthy to “help me!”
Already, New York’s Andrew Cuomo is investigating Thain’s acceleration of bonus payments to get them in before B of A took over, the WSJ reports. Expect that probe to widen very soon.
Thain’s company’s problems (which admittedly, he didn’t cause—he’d only been there a year or so) have cost the taxpayers billions of dollars and nearly wiped out Bank of America. He’s made himself a target now.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.