Before the Merrill purchase, BofA peers J.P. Morgan Chase &
Co. and Wells Fargo & Co. remained above the fray and mostly
unscathed by the mortgage meltdown and subsequent credit crisis, having
not traded too heavily in toxic mortgage debt and leverage loans.
However, by taking on Merrill, which evidently had traded heavily in
leverage loans - reportedly accounting for most of Merrill's $15
billion fourth-quarter loss - BofA in its own right recorded a fourth-quarter loss of $1.8 billion. Worse, the deteriorating Merrill loan portfolio threatens
the combined bank's solvency. Hence the reason for the Treasury's $20
billion capital infusion (on top of an earlier aggregate $25 billion
for both banks) and loan-loss guarantees of up to $118 billion, which
will be shared between Treasury and the Federal Deposit Insurance Co.
It would have been interesting to be a fly on the wall during those
meetings where Merrill's John Thain and troupe told BofA's Ken Lewis
about how those bad leverage loans were deteriorating faster than
originally projected in September, when the two banks agreed to merge.
The cartoonish image of smoke emanating from a bright red Lewis
probably wouldn't be too much of an exaggeration. Obviously those
uncomfortable meetings may have been too much to bear for Robert
McCann, head of Merrill's brokerage, and Gregory Fleming, who was to
run the corporate and investment banking unit of the combined banks,
but will instead teach at Yale Law, as both recently left BofA shortly
after it closed on the Merrill purchase.
So how much longer does Thain have? With his credibility at an
all-time low, will he follow Fleming's lead, and find a cushy position
in an Ivy-covered tower (after all, no business is going to hire him
now)? If not, will he be forcibly shown the door and tossed out like a
rowdy drunk at a bar? The only thing that is certain: Thain, who
reportedly thought he was the heir to Lewis' throne, is no longer even
on the shortlist of succession candidates. -
Matthew Wurtzel
Bank of America Corp.'s $138 billion second bailout package may explain the recent executive departures following the Charlotte, N.C.-based institution's $19.4 billion purchase of Merrill Lynch & Co. 
