Cuomo Has More Questions for Merrill Chief on Bonuses
By LOUISE STORY
John A. Thain, the former chief of Merrill Lynch, faced six hours of questioning last week with the attorney general of New York.But it was not enough.
Attorney General Andrew M. Cuomo filed a motion on Monday asking that Mr. Thain return and provide more details about the bonuses that were given out on eve of Merrill’s merger with Bank of America. The attorney general says in the motion that Mr. Thain, in complying with a subpoena, did not answer all of Mr. Cuomo’s questions.
The motion, filed in the Supreme Court of New York, coincides with the start of a week in which two of Bank of America’s top executives will meet with Mr. Cuomo. On Monday, the bank’s chief administrative officer, J. Steele Alphin, will answer questions, and later this week, the bank’s chief executive, Kenneth D. Lewis, will do so.
A spokesman for Mr. Thain said that Bank of America had directed Mr. Thain not to discuss specific bonus details. But, the spokesman added that Mr. Thain was continuing to cooperate fully with the attorney general’s office.
The attorney general’s investigation has focused on some $3.6 billion in bonuses that Merrill paid at the end of last year. Merrill, struggling to survive, agreed to be acquired by Bank of America in September, but the merger did not close until year-end, and in the months before the merger closed, Merrill’s business deteriorated, resulting in a $15.3 billion post-tax loss in the fourth quarter.
Neither company disclosed Merrill’s problems before the merger closed, and Mr. Cuomo’s office is expected to broaden his inquiry beyond Merrill’s bonuses into disclosure issues involving the transaction. The loss, which Mr. Lewis called a surprise, prompted Bank of America to seek a second round of taxpayer money.
Some details about the loss emerged in the motion filed on Monday. Merrill and Bank of America were $7 billion off in their estimates of Merrill’s pretax loss in the fourth quarter, Mr. Thain told the attorney general’s office. It was using those incorrect estimates on Dec. 8 when Merrill set its bonus pool, the filing says. Normally, companies do not make bonus payments until after they close the books for a year — which Merrill did not do until Dec. 31.
Mr. Thain, when asked if the worsened results would have lowered bonuses, avoided answering the question last week, according to a partial transcript of his session with Mr. Cuomo’s office.
Mr. Thain said that Merrill as a routine matter did not disclose projections, even as conditions worsen, as they did in December, according to the court filing.
“I don’t think it’s necessarily the case that we can predict what was going to happen between Dec. 8 and Dec. 31,” Mr. Thain said at the session. “Bonuses were determined based upon the performance and the retention of the people, and there is nothing that happened in the world or economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing.”
Mr. Thain also declined to discuss specific bonuses, telling the attorney general’s office that Bank of America had asked him not to.
Mr. Thain told Mr. Cuomo’s office that he met with Andrea Smith, a manager in human resources for Bank of America, just after the bonus pool was set on Dec. 8. The two compared bonus awards line by line and Ms. Smith objected to some. In response, Mr. Thain lowered those bonuses, according to the motion. Ms. Smith also detailed what types of employees at were paid at Bank of America, like employees in human resources, risk and public relations, to give Mr. Thain an idea of what to pay Merrill employees in those roles, Mr. Thain said, according to the transcript.
Mr. Thain would not name the people whose bonuses were lowered, and that is why the attorney general is asking him to reappear. Mr. Thain’s lawyer said that the bank had instructed Mr. Thain not to discuss compensation paid to specific employees, beyond the top five executives at Merrill, whose compensation is publicly disclosed.
The transcript provided a glimpse at the tone of the questioning in Mr. Thain’s session last Thursday.
“I feel bad for you because you’re getting caught in between this,” said Benjamin Lawsky , the deputy counselor and special assistant to the executive division in the attorney general’s office, in the session. “We’re going to end up back here doing this all over again.”
source : The New york Times
