Executive Meltdown

By Rick Gould, CPA, J.D.

Like most of the country, we had hoped the sale of Merrill Lynch to Bank of America would produce a larger, stronger financial institution and set an example for the banking community at large.

Instead, we were outraged to find out that just subsequent to the shareholder merger approval – and prior to releasing fourth-quarter losses – the Merrill Lynch Compensation Committee approved close to $4 billion in discretionary bonuses for executives and selected staff. And to make matters worse, we now find out that it was allowed by Bank of America! Our government had to fork up an additional $20 billion from the Troubled Asset Relief Program (Tarp) and guarantee additional debt to close on the acquisition of Merrill Lynch by B of A. This is unacceptable conduct and goes far beyond the definition of C-Suite abuse.

The federal rescue package was not intended to line the pockets of executives who already were grossly overpaid considering the billions lost by their banking institutions. It was meant to stimulate the economy and assist borrowers who need the banks as equity partners in their personal and business lives! What has become of the American way?

John Thain deserved to be fired. Merrill Lynch was in crisis. When he was made CEO thirteen months ago to rescue Merrill Lynch from failure he had to know they were getting clobbered in Q4 ($15 billion loss), experiencing dramatic losses for 2008 (ultimately $41 billion) as he was contemplating lavish pre-merger bonuses and as he paid out $1.2 million to re-decorate his office. Now pressure is mounting on Ken Lewis, Chief Executive of Bank of America, to resign for his mismanagement and withholding vital information from shareholders.

As a result of these recent events, Bank of America is in crisis and their share price has decreased by an astounding 80% in the past four months.

A meaningful stat in the just released 2009 EDELMAN Trust Barometer (http://www.edelman.com/trust/2009/) found “trust in U.S. companies at a low and trust in banks fell 16 points to 31 percent.” http://www.prweek.com/uk/home/article/876203/Trust-banks-collapses/

The good news is that both the new federal administration and the Attorney General of New York are both committed to implementing and enforcing stricter rules and compliance on executive pay, over the top bonuses, and lavish perks. We will be watching closely.