thain

Thain’s CIT Resurrection May Provide Second Chance After Exit From Merrill

by on February 10, 2010

By Christine Harper and Linda Shen Feb. 10 (Bloomberg) — John Thain and CIT Group Inc. are giving each other something that ousted chief executive officers and bankrupt lenders usually don’t get: a second chance. Thain’s record of success at Goldman Sachs Group Inc. and NYSE Euronext was marred by his exit from Merrill Lynch & Co. last year, when he was pilloried for $27.6 billion of losses, $3.6 billion of bonuses and $1.2 million of decorating expenses for his office. CIT, once the biggest independent commercial lender in the U.S., sought court protection last year, a move that’s usually a death sentence for a financial firm. CIT, which survived its reorganization, and Thain, its new CEO, are counting on each other to burnish their reputations. John Reed , the former Citigroup Inc. co-CEO who recruited Thain in 2003 from Goldman Sachs to the New York Stock Exchange, says it’s a good match. “He’s learned a lot,” said Reed, who was the Big Board’s interim chairman. At the time, Reed said he thought Thain, a fellow graduate of the Massachusetts Institute of Technology, needed to broaden his horizons after 24 years at Goldman Sachs. “He is today a different person than when he came over and first joined me, and a more capable person. He’s more mature.” The CIT job gives Thain, 54, a chance to fix a public company whose business — which includes lending to more than 3,000 small- and mid-sized businesses — is tied to the heart of the U.S. economy. To rescue the company, Thain must find lower- cost sources of funding, lift restrictions on its banking unit and win over regulators wary after the bankruptcy wiped out a $2.3 billion Treasury Department stake. ‘Big Difference’ “It’s clearly an opportunity to make a big difference and you can see why John would find it attractive,” said Paul Deighton , a former Goldman Sachs colleague who is now CEO of London 2012 Ltd., the organization that’s running the London 2012 Olympics. Thain had previously arrived at new jobs with a track record of success. He became CEO of the NYSE after helping to build Goldman Sachs into the world’s leading investment bank. When he took the helm of Merrill Lynch four years later, Thain had modernized the exchange, doing deals that transformed it into an electronic, international and publicly traded company. As the financial crisis deepened in 2008, Thain sold Merrill Lynch over a weekend, only to be fired by his new boss and criticized for the firm’s losses, bonus payments and office redecoration. Erasing the ‘Blot’ “He wants to find a way to erase the blot on his career from the ending of the Merrill Lynch saga, and what better way to do that than to take a very visible public company and turn it around,” said Douglas J. Elliott , a former JPMorgan Chase & Co. investment banker who is now a fellow in economic studies at the Brookings Institution in Washington. “If he does pull it off, he’s a hero.” Thain’s arrival at CIT was well-timed. On Feb. 8, his first day on the job, the company officially became free of limitations on compensation and other activities imposed on companies that received money from the Troubled Asset Relief Program, or TARP. “Contingent value rights” that the U.S. Treasury received in CIT’s bankruptcy were “terminated and cease to exist,” according to a CIT regulatory filing. “While the U.S. Treasury no longer has an investment in CIT, we are generally endeavoring to apply Treasury governance best practices,” CIT spokesman Curt Ritter said in an e-mailed statement Feb. 8. MIT, Harvard Thain, the son of a doctor, grew up in Antioch, Illinois, population 13,400, a town 60 miles (97 kilometers) from Chicago. He didn’t visit the East Coast of the U.S. until he arrived at MIT in Cambridge, Massachusetts, to study electrical engineering. From MIT he went straight to Harvard Business School and then directly to Goldman Sachs, where he worked in investment banking and traded mortgage bonds. In 1993, Thain moved into the administrative side of the company — known as operations, technology and finance — or by its nickname “The Federation” after the fictional organization in Star Trek, according to a Goldman Sachs executive who worked with Thain and spoke on condition of anonymity. Thain became chief financial officer and eventually ascended to president and chief operating officer under then-CEO Henry Paulson . Several former colleagues from Goldman Sachs credit Thain with leading the effort to build the firm’s risk-management processes and infrastructure over the next decade, saying he excelled at understanding the plumbing of the organization and recruiting talented executives to join a department that is dismissed at many Wall Street firms as “the back office.” ‘Real Contribution’ “The very fact that you had one of the best people in the firm running it, which made it a breeding ground for other good people, you could see this was a place that you could make a real contribution,” London 2012’s Deighton said of his decision to move from investment banking into operations under Thain in 1993. Bradley Abelow , who worked under Thain in the operations business for about a decade, said Thain was crucial to building a risk-management department at Goldman Sachs that could act as a check on the firm’s traders and bankers. He said Thain was also adept at collecting information from a variety of sources so that he didn’t rely too heavily on his deputies. “I always wanted to surprise him, to tell him something he didn’t know — I viewed that as an extreme challenge,” said Abelow, a founding partner of New York-based private-equity firm NewWorld Capital Group who previously served as chief of staff to Jon Corzine , the former governor of New Jersey. “I don’t know that I ever succeeded in that.” Sept. 11 Thain distinguished himself on Sept. 11, 2001, when terrorists struck the World Trade Center a half mile away, former colleagues say. Thain, who was the highest-ranking executive present at Goldman Sachs’s 85 Broad Street headquarters, turned his office into a crisis control center, established teams to locate Goldman Sachs employees and secured telecommunications for the firm. “He’s just a very level head, very cautious, and has absolutely excellent judgment both on people and situations,” said Deighton. In the crisis that brought down Lehman Brothers Holdings Inc. in September 2008, Thain succeeded in persuading Bank of America Corp. to pay $29 a share for Merrill Lynch during a single weekend, a 70 percent premium to the shares’ closing value the previous Friday. “He basically sold the company for a lot more than it was worth at a time when that was the right thing to have done,” Reed said. Bank of America Merrill Lynch’s losses accelerated after the sale and Ken Lewis , who was then CEO of Bank of America, fired Thain three weeks after the transaction closed. Thain found himself facing accusations that he’d failed to do enough to keep Bank of America apprised of the losses and that he’d accelerated bonus payments to Merrill staff. Information about Thain’s $1.2 million redecoration of his Merrill office, which took place when Thain joined in late 2007, was provided to the press at the same time. In April 2009, Lewis was stripped of his chairman title at Bank of America after investors rebelled against his handling of the Merrill Lynch takeover. He later resigned from the company. Last week, New York Attorney General Andrew Cuomo filed a civil fraud case against Bank of America, Lewis and former Chief Financial Officer Joe Price. The case alleges that they deceived investors and taxpayers in 2008 by not disclosing losses at Merrill Lynch before shareholders voted on the firm’s pending takeover, and used those losses to extract more bailout funds from U.S. regulators. ‘Without Merit’ Bank of America, based in Charlotte, North Carolina, has called the charges “totally without merit” and lawyers for Lewis and Price have denied wrongdoing. Cuomo’s lawsuit said that “from the moment the merger was announced, Merrill was transparent with Bank of America management about the losses Merrill was incurring.” The lawsuit “stands on its own and I’m glad that the truth has come out,” Thain said in an interview on Feb. 7. “I’m focused on CIT and I’m focused on moving forward — that is history to me.” Thain said he’ll start his job by studying CIT’s businesses and determining what kind of funding model can be most successful. Naming new senior managers will be a priority, Thain said. On Feb. 1, CIT Chief Operating Officer Alexander Mason became the fourth executive to announce a departure, saying he would leave on Feb. 26. That came on the heels of CEO Jeffrey Peek’s exit Jan. 15, and after CIT said in December that Chief Financial Officer Joseph Leone would retire in April. Chief Risk Officer Nancy Foster stepped down Dec. 31. Nelson Chai At Merrill, Thain assembled a management team largely by recruiting colleagues from Goldman Sachs and NYSE Euronext. Thain recruited Nelson Chai , chief financial officer at NYSE Euronext, to be CFO at Merrill. He said on Feb. 7 that Chai would probably be a candidate for the CFO position at CIT. Thain will also have to adapt to a very different culture at CIT than he was used to in his Wall Street jobs, said Brookings Institution’s Elliott. “This may be significantly harder for him than even he thinks because he hasn’t really run this type of company before,” Elliott said. “It’s easy to think that because you’re good at finance in general that you’d be good at every single aspect of it. But lending to small businesses is quite a different business.” Factoring Concern Some of CIT’s clients who rely on the company to provide financing that enables them to ship their merchandise to retailers are concerned that Thain doesn’t have enough understanding of that side of the business, known as factoring, said Vano Haroutunian , a partner at law firm Ballon Stoll Bader & Nadler PC in New York, which advises clothing and accessory companies that are customers of CIT’s. “They don’t see the logic of going with someone who’s from investment banking rather than someone who would be a little bit more familiar with asset-based lending and factoring,” Haroutunian said. “The concern is not about him personally, although there is some of that because of his record at Merrill Lynch.” To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net ; Linda Shen in New York at lshen21@bloomberg.net

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Thain’s CIT Resurrection May Provide Second Chance After Exit From Merrill

CIT Names Ex-Merrill Chief John Thain to Run Lender

by on February 8, 2010

By Christine Harper and Linda Shen Feb. 8 (Bloomberg) — John Thain , the ousted chief of Merrill Lynch & Co., was named to lead CIT Group Inc. , the commercial lender that emerged from bankruptcy in December, after almost a four-month search for a replacement. Thain, 54, becomes chairman and chief executive officer immediately, New York-based CIT said yesterday in a statement. The century-old lender had been led by Jeffrey Peek , another former Merrill Lynch executive, from July 2004 until Jan. 15, when Peek stepped down and board member Peter Tobin was named interim CEO. The job restores Thain to the top of a public company more than a year after he was pushed out by Kenneth D. Lewis , then CEO of Bank of America Corp. , which agreed to buy Merrill Lynch during the 2008 financial crisis. Thain inherits a company that was crippled by Peek’s foray into subprime lending before the bankruptcy. CIT still operates under constraints tied to a federal bailout in 2008 and is shut out from the commercial paper market, its traditional source of funding. “If he can pull this off, he’s going to be the king,” Brian Charles , a debt and equity analyst with R.W. Pressprich & Co., said in an interview. CIT rose 2.9 percent to $31.65 by 10:32 a.m. in German trading, after closing at $30.75 in New York Stock Exchange composite trading on Feb. 5. Need to Do Well CIT provides business loans to more than 3,000 companies and is the third-largest railcar-leasing and aircraft-financing firm in the U.S., according to its Web site. With 4,480 employees at the end of September, CIT is a fraction of the size of Merrill Lynch, which had a staff of more than 64,000 when Thain arrived. “This is a company that’s over 100 years old and its core business is lending to small- and medium-sized companies,” Thain said yesterday in an interview. “If we’re going to get the U.S. economy to continue to grow, if we’re going to create jobs, then we need to have this kind of a company do well.” Before joining Merrill Lynch in December 2007, Thain ran NYSE Euronext , the company that owns the New York Stock Exchange, and spent about 24 years at Goldman Sachs Group Inc. , the most profitable securities firm in Wall Street history. At CIT, Thain’s pay is subject to compensation restrictions imposed on management of companies that have received funds from the Troubled Asset Relief Program, or TARP. He will receive $500,000 in salary and $5.5 million in shares, of which $2.5 million is restricted for one year and $3 million is locked up for three years, according to a person familiar with the matter. The person declined to be identified because the information hasn’t yet been made public. Pay at Merrill Thain will also be eligible for a $1.5 million “discretionary” payment in restricted shares, contingent on his performance, that will vest after two years and can’t be sold for three years, the person said. CIT can claw back the $1.5 million payment under certain conditions, the person said. Merrill Lynch agreed to pay Thain $44 million in bonus, salary and stock when he took over that firm, which he arranged to sell less than a year later to Bank of America. Lloyd Blankfein , chairman and CEO of Goldman Sachs, was awarded $9.6 million in restricted stock and salary for his performance in 2009, while Jamie Dimon , chairman and CEO of JPMorgan Chase & Co. , got about $17 million in restricted stock and options. Thain said CIT could exit TARP within the next few months by extinguishing “contingent value rights” that the government received during the bankruptcy. Salt Lake City For CIT, Thain must find lower-cost sources of funding, lift restrictions on its banking unit and win over regulators wary after the bankruptcy filing wiped away a $2.3 billion Treasury Department stake. CIT, unable to win a second round of government assistance, was forced into bankruptcy after posting losses from subprime and student lending for 10 consecutive quarters totaling more than $6 billion. The company has been trying to move its small-business lending, trade finance and U.S. vendor finance operations to CIT’s Salt Lake City-based banking unit so it can use deposits as a source of cheaper funding for loans. Thain said in the interview that he wants to spend the first couple of months reviewing CIT’s businesses to figure out how they can be funded most effectively. Some units can fit into CIT’s Utah-based bank if Thain can get the Federal Deposit Insurance Corp. to lift a “cease and desist order” it has placed on that business, he said. He said it’s too early to speculate about whether the other businesses, which have traditionally relied on funding from the capital markets, should be sold. Asked if the entire company might be sold, Thain replied that he wouldn’t rule it out. The current plan is to run CIT as an independent entity, he said. CIT Reorganized “His experience at Goldman, his experience, particularly at the New York Stock Exchange, which was a restructuring of sorts, really helped us hold him in good stead in terms of what he has to accomplish at CIT,” Tobin said yesterday in an interview. CIT’s bankruptcy reorganization cleared away $10.5 billion in debt and pushed back bond maturities for three years. The firm recruited seven new independent directors and named Tobin as interim CEO after Peek’s exit. Egon Zehnder International was hired to find a replacement. The company will rely on Thain to “continue CIT’s transition to a more streamlined commercial lender,” CIT said. This month, Chief Operating Officer Alexander Mason became the fourth executive to announce a departure, saying he would step down Feb. 26. Earlier, CIT Chief Financial Officer Joseph Leone said he would retire in April, and Chief Risk Officer Nancy Foster stepped down Dec. 31. ‘Well-Respected’ Thain said naming new senior managers will be a priority. Nelson Chai , who was Thain’s CFO at Merrill Lynch and NYSE Euronext, will probably be a candidate for the CFO position at CIT Group, Thain said. “John is a well-respected financial services executive and proven leader who is uniquely qualified to lead CIT at this critical stage,” CIT lead director John Ryan said in a statement yesterday. “CIT and its customers will benefit enormously from his breadth of experience, industry acumen and deep knowledge of the financial services sector.” Thain’s departure from Merrill Lynch after Bank of America’s takeover was clouded by criticism about Merrill’s plan to pay $3.6 billion in bonuses even as the firm’s losses swelled to $27.6 billion. Thain has said Bank of America was aware of the bonuses and had been kept informed about the losses. Focused on CIT Last week, New York Attorney General Andrew Cuomo filed a civil fraud case against Bank of America, former CEO Lewis and the former Chief Financial Officer Joe Price . The case alleges that they deceived investors and taxpayers in 2008 by not disclosing losses at Merrill Lynch before shareholders voted on the firm’s pending takeover, and used those losses to extract more bailout funds from U.S. regulators. Bank of America, based in Charlotte, North Carolina, has called the charges “totally without merit” and lawyers for Lewis and Price have denied wrongdoing. The lawsuit “stands on its own and I’m glad that the truth has come out,” Thain said. “I’m focused on CIT and I’m focused on moving forward — that is history to me.” One lesson of his experience at Merrill Lynch will stick with him. Thain’s departure coincided with revelations that he’d spent $1.2 million to redecorate his office at the money-losing company when he joined in 2007. He later said the renovation was a mistake and reimbursed the firm. At CIT, “I think I’ll keep my office exactly the way it is,” he said. To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net ; Linda Shen in New York at lshen21@bloomberg.net .

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CIT Names Ex-Merrill Chief John Thain to Run Lender

John Thain, Ex-Merrill Lynch CEO: Too-Big-To-Fail Banks Could Face Fees

January 11, 2010

Ex-Merrill Lynch CEO John Thain today suggested that large Wall Street firms, not unlike the one he used to run, should be subject to new fees. Ahead of this week’s Financial Crisis Inquiry Commission hearings, former Merrill Lynch CEO John Thain emerged to speak with Bloomberg News about regulatory reform and compensation structures on Wall Street. Thain indicated that the biggest, most complex of the too-big-to-fail financial institutions be subject to some sort of fee. But he was adamant that the fine would not be a “tax”: Well, I don’t think taxation is necessarily the right way, but one of the things you could do is you could have a form of a fee for being too big to fail. You could actually charge them. And the bigger they are, the more complicated they are, the more you charge them. Thain — who after negotiating Merrill Lynch’s merger with Bank of America was reportedly ousted by former BofA CEO Ken Lewis last year over controversial bonus payouts at the firm — also discussed his ongoing job search (“I’m really looking at a broader range of opportunities”), disputed the efficacy of the Glass-Steagall Act, and said that Wall Street was already on its way toward reforming compensation. On regulation of the financial industry, Thain was noncommittal, arguing that the “way to get at this issue” was to ensure “that the financial institutions have the right regulatory oversight, that they have the right capital structure.” And he maintained his opposition to reinstating Glass-Steagall — the legislation that required a division between commercial and investment banking institutions — alleging that it hindered competitiveness: If you look at the competitive landscape for the large financial institutions, they have to compete globally, and to be able to have a lending business as well as a securities business, I think, puts them in the best position to compete on a global scale. And at least so far as pay packages go, Wall Street has not, Thain claimed, gone back to “business as usual.” By shifting bonuses from cash to stock — which he said “lines the employees up with the shareholders” — banks are reforming their compensation plans. But ultimately, “the firms themselves have to compensate their people.” Watch the interview below (the full transcript follows): TRANSCRIPT: DEIRDRE BOLTON, BLOOMBERG NEWS: All right. Lizzie, thanks very much. Well, it may be a new year, but as you just heard the pressure on Wall Street has in no way abated. Compensation, regulation, they are as explosive topics as ever. ERIK SCHATZKER, BLOOMBERG NEWS: This morning we’re going to help guide you through the minefield with the help of two of Wall Street’s most capable hands, John Thain, the former CEO of Merrill Lynch and NYSE Euronext and Rodgin Cohen, the Chairman of law firm Sullivan & Cromwell. John, Rodgin, delighted to have you both. Thanks for joining us. Let’s kick it off with this. Down in Washington we just heard a whole lot from Washington, our reporters down there. Down in D.C. there’s a growing perception that it is back to business as usual on Wall Street. John, from your perspective, isn’t this the one thing Wall Street can least afford right now? JOHN THAIN, FORMER CEO, MERRILL LYNCH: Well, I think that Wall Street has changed. You see the focus on compensation and the structure of compensation and you are going to see bonuses that I’m sure will be multi- million dollar bonuses, but they’re going to be much more equity. I think in many cases they will be primarily stock and that lines the employees up with the shareholders. And the fact that that stock’s going to vest over multi-year periods of time and the fact that there will be some form of ability to recoup the bonuses, I think Wall Street has started to change. SCHATZKER: Well, that, without question is a big deal for people on Wall Street, the whole liquidity issue, the fact that they aren’t going to get as much cash, but when people see that big number, people on Main Street, and those are the people who are talking to the Congressmen, they don’t buy the idea that there’s been real reform on pay. What do you do about that? THAIN: you know, I think that’s a problem. I think there’s going to be no real answer to that. I think the numbers when they come out will be subject to criticism and public outrage, but also, you know, the firms themselves have to compensate their people. So it’s going to be a balance. BOLTON: You know, we heard from Lloyd Blankfein, right, saying no one’s going to be happy. I mean, the employees don’t seem happy because they got more stock versus cash than they wanted, and of course there’s the continuing mounting public outrage. Rodgin, you and I have spoken about this in the past. I mean, does Washington understand to what extent it’s hard to run a competitive business and does Wall Street understand how out of whack its salaries are with the rest of the country? RODGIN COHEN, CHAIRMAN, SULLIVAN & CROMWELL: I think, Deirdre, you’ve hit the nail on the head. There’s a problem of understanding on both sides, and that’s what is causing, frankly, so much of the disconnect and the controversy. SCHATZKER: Rodgin, you know the people who are going to testify down there very well, so does John, John Mack, Lloyd Blankfein, Jamie Dimon, Brian Moynihan. What’s the best thing that can come out of this financial crisis inquiry commission? What’s the worst thing that can come out of it in your mind? COHEN: I think the worst thing that can come out of it is a search for villains, because if we vilify individuals we’re going to miss the real causes of the crisis. The best thing that can come out is, not surprisingly, the converse, which is to make and conduct a meaningful search for the real causes of what happened. BOLTON: Is it a waste of time though? I hate to say that. I mean, we’ve had so many people, so many big voices giving us details about what caused the crisis. Do we need this now? COHEN: I think it’s actually a desirable approach to have a systemic effort as opposed to rifle shot attempts. The people I know on the commission are very responsible people I think are dedicated, committed to what they’re doing, so I think it could be a good idea. SCHATZKER: John, very quickly, before we take a quick break, you’ve watched your fellow CEOs testify over the course of this past year. Do you get the feeling sometimes that it’s just a kangaroo court down there? THAIN: Well, I don’t think it has to be, and I actually think that what Rodgin said is absolutely right. If there really is an attempt here to learn, to find out what we can do different to change some of the causes of this financial crisis, I think it’ll be constructive. If on the other hand it is in fact just an opportunity to pummel the CEOs, then I don’t think it’s a very good use of people’s time. SCHATZKER: All right everybody, stay tuned. We’ve got much more coming with John Thain and Rodgin Cohen. We’re going to ask them about Glass- Steagall. We’ll talk about the conspiracy theory around Goldman Sachs’ as well. We’re taking a short break, back in just two minutes’ time. 07:10 (BREAK) 07:14 BOLTON: We are continuing our conversation now with John Thain, former CEO of Merrill Lynch and Rodgin Cohen, Chairman of Sullivan & Cromwell. John, I want to start with you. You’re an ex-Goldman man. The Goldman conspiracy is alive and well. We were all just revisiting the “Rolling Stone” article comparing Goldman to a giant vampire squid, sucking the blood off the face of humanity or something like that. So I mean, thanks to Hank Greenberg it seems like the conspiracy is alive and well. What do you make of Goldman? THAIN: Well, you know, Goldman is a great place. It has a lot of very, very talented people. Those people go on to do things beyond Goldman. Obviously many things in the government, many things in public service. You know, I think that’s a good thing and all of this conspiracy theory is just nonsense. SCHATZKER: Rodgin, you saw the bailout process probably from more angles than just about anybody else. It’s quite breathtaking, in fact, and as such, do you believe based on what you’ve seen that Goldman Sachs had, let’s call it, undue influence over anything that transpired over the course of last fall when it came to saving Wall Street or in some cases not saving Wall Street? COHEN: I do not believe it had such an influence and there is a single pivotal moment. Goldman Sachs was getting ready to merge with Wachovia in a transaction which would have involved less assistance than Citi would have received. And it was the fear of the Goldman connection that clearly prevented that transaction from happening. SCHATZKER: So that one incident is enough to dispel all these conspiracy theories? COHEN: Well, it is a very powerful incident and it is the one actual demonstration of the relationship of Goldman to the government. SCHATZKER: I want to shift back to Glass-Steagall, shall we, Deirdre? Or at least to regulation, and we’ll bring up the subject of Glass-Steagall with you, John, because Barney Frank, the Chairman of the House Financial Services Committee threw his support behind this movement to reintroduce some kind of separation between commercial and investment banking just last week. Based on what you’ve seen, what you’ve heard, does the financial services industry need to start thinking about Glass-Steagall more in terms of an eventuality that they’re going to have to deal with and less about fighting it? THAIN: Well, I don’t think so. If you look at the competitive landscape for the large financial institutions, they have to compete globally, and to be able to have a lending business as well as a securities business, I think, puts them in the best position to compete on a global scale. SCHATZKER: But how do you persuade people like Barney Frank? He’s in an extraordinarily position, Chairman of the House Financial Services Committee, that that’s the case? Surely, I mean, he’s an extraordinarily intelligent man, as you know. He understands these dynamics. Is it just Barney pandering to populism for the time being and then he’ll kind of come around and think about it your way? THAIN: No, no. Barney’s very, very smart and very talented and understands these issues very well. I think the regulatory structure and making sure that the financial institutions have the right regulatory oversight, that they have the right capital structure that’s really the way to get at this issue. BOLTON: And Rodgin, we’ve been talking about the Fed and its role. A lot of people wanting to take power away, perhaps make it less independent. You in the past have said that’s the biggest mistake possible. I take it you still have that belief? COHEN: I still do, and you know, I find an interesting analogy to the attempted Christmas Day bombing, where everyone is saying in the intelligence community we need to connect the dots? In the financial community we need to do so as well, and the Fed is better positioned than anyone else to accomplish that dot connection. SCHATZKER: John, part of this discussion about Glass-Steagall stems from the fact that there are many people out there, including in Washington, who believe that many of the largest financial institutions in the United States are still too big to fail. Do you agree with that nomenclature, and if not, how would you term it? How would you deal with the problem? THAIN: Yeah, I think too big to fail is one of the biggest issues that we haven’t really figured out what to do with yet. There’s no question in my mind that at least the top five financial institutions today are in fact too big to fail, and trying to come up with a mechanism to deal with that. It’s obviously not a good situation where you have this too big to fail concept and I think we really have to find a way to manage that. SCHATZKER: Do you tax them? I mean, how do you – we’ve got only about 15 seconds, I apologize – but what do you do? THAIN: Well, I don’t think taxation is necessarily the right way, but one of the things you could do is you could have a form of a fee for being too big to fail. You could actually charge them. And the bigger they are, the more complicated they are, the more you charge them. BOLTON: Wow, we’re going to ask Rodgin to weigh in on the other side of this break because he has specifically said “big is not bad.” We’re going to continue our roundtable discussion in just a moment. 07:19 (BREAK) 07:22 SCHATZKER: You’re watching a roundtable conversation here on the “INSIDE TRACK” with John Thain, the former Chief Executive of Merrill Lynch and NYSE Euronext and Rodgin Cohen, Chairman of Sullivan & Cromwell. Well, Rodgin, I want to go right back to you because before the break we were talking about too big to fail. John telling us that in his mind top five institutions in this country, financial institutions, are in fact too big to fail, and maybe we need to charge them some kind of fee for the systemic risk they pose. You and I and Deirdre have talked about this issue before. I want you to remind us of your feelings about too big to fail. COHEN: Well, I do not believe there should be too big to fail, and I would define too big to fail as protecting creditors. I believe that there must be some possibility of creditors suffering some loss upon the resolution of a large institution. BOLTON: I mean, you’ve even pointed out in the past that Goldman Sachs, JP Morgan Chase, are examples of where big is good. COHEN: I absolutely think there are benefits from being big, but there is – should certainly not be a concept that big is bad. And John’s idea was one way of dealing with the problem. There are other ways, but certainly there should not be a too big to fail which creates a competitive advantage for the very largest institutions. SCHATZKER: I do want to talk very briefly about at least one of those institutions because it was a big week for that institution last week, Bank of America. John, it was the firm that took over Merrill Lynch. You know it well. I want to ask you a question. Did you want the job that Brian Moynihan got, CEO of Bank of America? I’m so curious I simply have to ask. THAIN: Well, that’s a tough thing to really ask me because, of course, I left there almost a year ago, and I was never a candidate for that job. And it is a tough job and, you know, I think, you know, Brian’s going to have a tough, tough job going forward. SCHATZKER: When you say tough, what do you have in mind? I mean, if you were sitting in his shoes, knowing Bank of America’s balance sheet the way that you do, knowing Merrill Lynch’s balance sheet the way that you do, what would your priorities be as CEO? THAIN: Well, it’s a very large institution. It has a whole broad range of businesses. Integrating those businesses and really taking advantage of the fundamental business strategy, which makes sense, so that the acquisition of Merrill Lynch, the combination of Merrill’s wealth management, securities business, investment banking business, with the range of businesses of Bank of America, there’s a lot of opportunity to get synergies there, but that’s still a tough job. BOLTON: What do you make of the way that Moynihan is managing the bonus issue? It seems like he’s paying out record bonuses but decreasing incentive pay. Is that the right way to go? Is that the right way for Wall Street to go? THAIN: You know, I haven’t really been able to see what exactly they’re doing. I don’t think we know yet. I think that paying bonuses that’s going to be competitive so that they don’t lose people is going to be necessary. SCHATZKER: I don’t want to focus the conversation here on John exclusively, Rodgin, but I do have one other question for him. I am somewhat surprised to find out that you weren’t a candidate for the job given all that you knew about Merrill Lynch and all that you came to know in a short period of time about Bank of America, but I do want to know this. What do you think your next job is going to be? THAIN: Well, I’m working on that and I can’t really say yet, but I’m working on what I want to do next because I definitely do want to work. SCHATZKER: Is it safe to say that you want to return to Wall Street in a senior capacity? THAIN: You know, I think that’s not necessarily the case and so I’m really looking at a broader range of opportunities right now. BOLTON: And Rodgin, we should ask you the same thing because a few years ago you were going to retire and then I think you got sucked back in as many people called on you for assistance, for help through the crisis. As Erik mentioned you’ve probably been – sort of have the bird’s eye view and in-depth view of this crisis. What’s coming up for you? COHEN: I think more of the same, although perhaps at a less frenzied pace because hopefully the world will be at a less frenzied pace. But I very much enjoy what I’m doing. BOLTON: All right. SCHATZKER: All right. Gentlemen, we’d like to thank you, John Thain, former CEO of Merrill Lynch. We’re going to see him appear in a new job soon by the sounds of it. Rodgin Cohen, the Chairman of Sullivan & Cromwell. You’ve been watching a roundtable conversation about everything from banks to regulation to pay to John Thain’s next job, right here on the “INSIDE TRACK.”

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Thain Says Fee for Being `Too Big to Fail’ May Be Part of Reform Solution

January 11, 2010

By Erik Schatzker and Deirdre Bolton Jan. 11 (Bloomberg) — John Thain , the former chief executive officer of Merrill Lynch & Co., said a “fee” may be necessary to solve the problem of banks becoming so great a risk to the financial system that they need government aid. “‘Too big to fail’ is one of the biggest issues that we haven’t really figured out what to do with yet,” Thain said today in an interview on Bloomberg Television. While a fee for systemic risk may be part of the solution, a new tax is “not necessarily the right way” to resolve the issue, he said. U.S. lawmakers developing legislation in response to the financial crisis may revive sections of the 1933 Glass-Steagall Act that separated commercial and investment banking. Senators John McCain of Arizona and Maria Cantwell of Washington last month proposed preventing deposit-taking banks from underwriting securities, engaging in proprietary trading, selling insurance or owning retail brokerages. “There’s no question in my mind that at least the top five financial institutions today are in fact too big to fail,” Thain, 54, said. “You could actually charge them and the bigger they are, the more complicated they are, the more you charge them.” H. Rodgin Cohen , chairman of Sullivan & Cromwell LLP, said in a roundtable discussion with Thain that reform should take into account that large banks benefit from their size. “I do not believe there should be ‘too big to fail,’” Cohen, 65, said. “I absolutely think there are benefits from being big, but there should certainly not be a concept that big is bad.” Thain, who was dismissed from Bank of America Corp. last year after the company bought Merrill Lynch, is looking at a “broad range” of job opportunities, he said. Thain is “not necessarily” looking to come back to Wall Street in a senior position, he said. To contact the reporters on this story: Erik Schatzker in New York at eschatzker@bloomberg.net ; Deirdre Bolton in New York at dbolton@bloomberg.net ;

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Thain: I Should Have Furnished My Office At Ikea

September 18, 2009

John Thain, the former chief executive officer of Merrill Lynch & Co. who was accused of overspending on an office renovation as the broker teetered, said he should have bought less-expensive furniture at Ikea.

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Video: Former Merrill CEO John Thain Speaks Out

September 18, 2009

According to Thain, Bank of America Knew of Bonuses (Bloomberg News)

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