Wednesday, September 17, 2008

Bloomberg: Merrill's Thain. Aides May Get $200M for Year & People Know Something is Wrong but Don't know What

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First, let me say running Merrill Lynch is difficult work and a stressful life, I am sure. Second, let me say working in a coal mine for a 10 hour shift sure isn't easy either. Third, I do realize the 2 Goldman Sachs executives Thain recruited gave up lucrative pay packages at Goldman to come to Merrill so you have to understand that when you read these numbers. But in the "heads I win, tails I win" culture of executive payouts these are some staggering numbers nonetheless.

Keep in mind Thain has been at Merrill for under a year. And his associates have been well under a year. In fact, Thomas Montag joined Merrill on August 4th. For his 6 weeks of hard work he is looking at a payday of $76 million. Peter Kraus joined Merrill last week and looks to make $95 million. That's good work for one week. (again it is replacing his Goldman package but it truly is jaw dropping if you think about it) This is why I don't harbor any ill will to athletes - what most of them make is nothing compared to what the top cheese in corporate America is. Stock goes down 60%? Not a problem - the payout is the same.

At least we are not paying the bill for this one...
  • Merrill Lynch & Co. Chief Executive Officer John Thain and two former Goldman Sachs Group Inc. colleagues he recruited may reap almost $200 million for their year running Merrill if they leave or are given lesser roles after Bank of America Corp. buys the brokerage.
  • Thain, who got a $15 million bonus when hired in December, stands to get an additional $11 million in accelerated stock payouts if he doesn't stay after the deal, compensation consultant Graef Crystal said.
  • Trading chief Thomas Montag, who joined in August, may get $76 million including bonus and accelerated awards.
  • Strategy head Peter Kraus was given $95 million including bonus and stock awards to replace a Goldman package he had to forfeit, people familiar with the matter said.
  • Merrill's stock returned more than 13 percent a year from 2000 through 2006. Since Dec. 1 of last year, Thain's first day, the shares have fallen more than 60 percent Thain earned the moniker ``Mr. Fixit'' for his stewardship of the New York Stock Exchange for four years beginning in January 2004. Before that, he was president and chief operating officer at New York-based Goldman, where he served under then- CEO Henry Paulson. Now U.S. Treasury secretary, Paulson helped to lead a weekend of discussions during which Bank of America initially weighed a bid for Lehman. (remember this is Goldman Sachs world - we just live in it)
  • ``I doubt Thain understood the magnitude of risk and exposure on Merrill's balance sheet,'' Bove said. ``I don't think anyone could have done a whole lot.''
  • In January, Thain began recruiting Montag, who agreed in April to join as head of trading and sales with a start date of Aug. 4. In addition to a $39 million guaranteed 2008 bonus to be paid in January, Montag got 1.05 million shares subject to vesting over three years, according to regulatory filings, awarded to replace stock grants from his prior employer that he forfeited by joining Merrill. Those, worth $30 million at $29 a share, may vest in a change of control. Montag, 51, also has 10-year options on 2.4 million shares of Merrill Lynch stock carrying a strike price of $26.40, Crystal said. Those options, which would fully vest if he left the combined company, would be worth a minimum of $6.4 million at the $29 per share price, according to Crystal, and could be worth far more.
  • Kraus, 56, joined Merrill last week and spent the past weekend helping to negotiate the Bank of America deal. Merrill's contract with Kraus, who worked at Goldman for 22 years before leaving in March, includes restricted stock and options to compensate him for the forfeited Goldman package, said two people familiar with the matter, who declined to be identified because Merrill hasn't disclosed it. That package was valued at $65 million in May, when his hiring was announced, the people said. He also got a guaranteed 2008 bonus of $30 million, one person familiar with the award said.
Meanwhile as a side note - one of my pet peeves - the financial illiteracy of the country's populace. It is much easier to fleece the sheep when the sheep just have a general sense of "something is wrong" but don't know enough to actually know what it is. I was watching an interview on one of the news channels and the pundit was dismayed that there was not outrage at the Fannie/Freddie bailout by taxpayers. When they went out and asked said taxpayers what they thought of the bailout the #1 response was "Will this lower my mortgage payment?" And that folks, says it all. Bloomberg has a piece here...
  • Wall Street had Daniel Palladino rattled. He couldn't put his finger on why. ``I'm trying to absorb all this,'' said Palladino, 48, a television writer, as he had coffee yesterday at the Farmer's Market in Los Angeles and read newspaper accounts of the demise of Lehman Brothers Holdings Inc. (at least he reads the paper - a lost art it appears) The significance of the 158-year-old New York firm's bankruptcy filing eluded him, he said. ``I don't know more than anyone else, financially,'' he said. ``A bank to me is an ATM and a checking account.''
  • Like many Americans interviewed yesterday, Palladino wasn't clear how or even whether the turmoil on Wall Street would affect him.
  • Linda Burke, 57, a customer service consultant with AT&T Inc. in Atlanta, said she figured her retirement savings would take a hit and added that she was angry, though she wasn't sure at whom. (sorry this statement, just made me giggle - "I'm mad as hell! I'm not going to take it anymore! I'm going to march right up the steps of the ... wait, where do I go to file my complaint? And whom to?") ``If I knew more,'' she said, ``I could find someone to blame.'' (aha! always a wrinkle in the game plan - perhaps an hour invested in reading would help? or maybe a weekend on a certain blog?)
  • The reshaping of the U.S. financial industry is bewildering to ``folks who don't live and breathe this stuff,'' said Jim Behrens, president of Ralls County State Bank in New London, Missouri. (this is true - even well educated people who don't follow this stuff day in and day out, won't realize what is being done to the federal balance sheet)
  • Because of the credit crunch, ``banks are becoming more conservative,'' he said. ``For the man on the street, that means money and favorable terms are harder to get.''
  • The impact yesterday was clear for Jan Ziebell, 66, a retired probation agency employee from Pewaukee, Wisconsin - ``We're watching our nest egg for retirement shrink,'' Ziebell said.
  • Jay Leslie, 60, of East Brunswick, New Jersey, said he may not be able to retire as planned in five years. (recommendation - ask Thain for a retirement package? He is handing out money like it's nobody's business) ``I may have to work longer,'' said Leslie, who sells women's clothes. He said he blamed Washington, not Wall Street. ``The government didn't have any idea how serious this was,'' he said.
  • That wasn't the view of Gary Jones, 67, an Atlanta retiree who said he was ``so concerned I stayed up the last two nights moving my money into T-bills and other safe havens.'' (does Bloomberg only talk to the 60+ crowd? I can only imagine what responses they found in the 20-35 year old demographic) ``We ought to sue the heck out of every board of director for the last 10 years,'' he said. (Mr. Jones - I like your way of thinking - but most boards are just hand picked foxes watching the henhouse)
  • For Chaz Harris, the developments didn't convince him that the U.S. was in any trouble. ``The economy's pretty bad, but people are still spending money on what they want,'' said Harris, 20, an unemployed warehouse worker who lives with his parents in Weehawken, New Jersey. Referring to the Take-Two Interactive Software Inc. video game, he said, ``I mean, `Grand Theft Auto' did half a billion in seven days. So the economy's not that bad.'' (aha, they *did* find a 20 - 35 year old: and we can only ask him where he gets him money for his video games?)
So just thinking out loud at all these large cap mutual funds that dominate people's accounts - full of "safe" haven stocks such as Citigroup, Washington Mutual, Fannie, Freddie, Lehman, Bear, AIG... et al. Can't be too good for the proletariat; but no matter what the outcome the executives and their boards always cross "GO" with their cash in hand. Heckuva job Brownie(s)!

Speaking of boards - the fuss is growing louder over Lehman's
  • As Lehman’s stock continued to spiral downward to close on Friday at $3.60 — a level the company has not seen for over a decade — more investors started to ask the question that always seems to pop up when a company is on the brink: Where is the board of directors who were supposed to be guarding our interests? As usual, the answer appears to be: supporting the company’s CEO, instead of pushing him to make difficult decisions before the firm’s back is against the wall.
  • The research firm was especially concerned that Lehman's fossilic board of directors had just awarded Fuld a sum a that put him in the ranks of the top 2% of American CEOs: $71.9 million.
  • The Corporate Library's main beef about the board was that about half of Lehman’s 11 directors are over the age of 70, according to the firm’s proxy. Each of them has been a member of Lehman’s board for almost 15 years on average.
  • Our board is a joke,” says one Lehman executive who asks not to be named.
And...
  • Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry. Meet the Lehman Brothers Holdings Inc. external board directors, a group of 10 people who, perhaps unknowingly, carried the health of the world’s financial system on their shoulders the past 18 months.
  • How much was Lehman’s board monitoring the company’s on-going risk as it began accumulating its portfolio of real-estate assets and securities? In both 2006 and 2007, the risk committee of Lehman’s board met twice each year, according to Lehman’s SEC filings. (I'm too lazy to look up how much they made for those 2 meetings but I'm sure a pretty penny)

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