Go ahead and laugh. We’re serious.
John Thain parachuted into Merrill Lynch at the end of 2007. He immediately started raising money and taking write-offs. Each quarter, while the rest of Wall Street was whistling Dixie, he raised more money and took more write-offs–and then he persuaded the media and the market that Merrill’s capital position was strong. Then, the next quarter, he did the same thing all over again.
Meanwhile, Bear Stearns imploded. Fannie and Freddie imploded. AIG imploded. General Motors, Chrysler, and Ford imploded. Lehman ignored urgent pleas to raise more capital and imploded.
Then, that fateful Lehman weekend, when it had become clear to Thain that no matter how much capital he raised, he would never be able to stabilise a balance sheet that was actually just a steaming pile of dung, he decided to sell.
Selling a firm whose stock is likely to go to zero within 24 hours is no mean feat (just ask Dick Fuld). In the space of a day, Thain did what every shrewd seller does but is extremely difficult to do in those circumstances–create the appearance of demand. Specifically, he persuaded designated sucker Ken Lewis that, not only was Merrill’s capital position strong (it wasn’t), but that if Lewis didn’t jump, he’d lose the firm.
And Lewis jumped. To the tune of almost $50 billion. For a firm that, 24 hours later, probably would have been worth zero.
And now, three months later, it’s clear that, without misrepresenting anything, Thain snookered Lewis into paying almost $50 billion for a firm that was actually worth zero, even thought it’s stock was still trading in the $20s at the time. That’s the embodiment of acting in the best interests of shareholders.
So we say again: Ken Lewis should be fired. And John Thain is the 2008 CEO Of The Year.
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