Take the Money and Run

Still want to release the rest of that TARP money? Maybe not, when you see what it is being used for. Last night word got out that Merrill Lynch dispensed year-end bonuses to employees a month earlier than usual--and just days before Bank of America closed on its ill-advised acquisition of the venerable investment banking firm. Sneaky? You bet.

For one thing, who at Merrill Lynch deserved a bonus of any kind? After all, this is a company that has recorded cumulative losses since July 1, 2007, of $39 billion, with a "B." In its last quarter as an independent company, Merrill went out with a $15 billion loss. Coincidentally (or not), $15 billion is the amount handed out in bonuses at Merrill during 2008. $25 million of it went for a ritzy apartment in the New York City building pictured above.

You see, last May Merrill announced the hiring of a dude named Peter Kraus, straight from Goldman Sachs, as an executive vice-president. Two weeks after he reported for work, the feds pushed Merrill and Bank of America into a shotgun wedding, ostensibly to save Merrill, which was loaded with gazillions of dollars worth of bad debt. In the new corporate structure, Kraus was the odd man out, and he was let go in October with a nifty parachute. In December his wife paid $37 million for the new Park Avenue address (for a tour, go here).

Surely you recall that the TARP legislation passed by Congress in October placed restrictions on beneficiary firms, including "a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period that the [Treasury] Secretary holds an equity or debt position in the financial institution" ("senior executive officer" defined as among the "top 5"). Kraus gets off because his pay package was negotiated before the TARP enactment. Moreover, it was Bank of America, not Merrill, that got TARP money, and technically Kraus was never an employee of Bank of America. So he walks.

Still, Merrill Lynch, for all intents and purposes, came under federal receivership on that fateful September day when Lehman Bros. went bankrupt. What appeared at the time to be a private-sector take-out was in reality choreographed and eventually bankrolled by the Treasury Secretary, Henry Paulson, formerly Chairman and CEO at Kraus's old firm, Goldman Sachs. Merrill's CEO, it must not be forgotten, was John Thain, formerly President and CFO at...um...Goldman. (Is there an echo in here?)

Thain made a bid for a $10 million-dollar bonus of his own, but Merrill's compensation committee, meeting three days after B of A shareholders approved the merger on December 5, would have none of it. Thain was able, however, to take care of some buddies, persuading the committee to accelerate employee bonuses adding up to between $3 and $4 billion. That mission accomplished, Thain then notified B of A executives of Merrill's Q4 loss.

Not at all amused, Bank of America announced Thain's resignation this afternoon. Meanwhile, New York Attorney General Andrew Cuomo is investigating the lame-duck bonus awards, and B of A CEO Ken Lewis must contend with shareholder suits questioning his acquiescence to the Merrill deal. Behold your tax dollars at work.