Too Big to Fail [79]
Paulson was speechless when Thain marched into his office to tell him he was leaving to become CEO of the New York Stock Exchange. Thain subsequently went on to deserved sucess in the position.
Four years later, with the credit crisis deepening in the fall of 2007, several large banks started taking huge losses and firing their CEOs. Thain was a natural candidate for firms looking for an upgrade. (Indeed, he had been considered for the position not just at Merrill Lynch but also at Citigroup, along with Tim Geithner.) He debated with himself—and with his wife, Carmen—about whether he would take the Merrill job if it was offered to him. He had done his own due diligence on the firm’s books and was satisfied that, despite the roughly $90 billion in shaky loans and derivatives on its balance sheet, it was manageable. But more than that, he saw it as an opportunity to be a CEO of a major brokerage firm—to get the job he had never landed at Goldman. Given his contacts and reputation, he also saw Merrill as a platform from which he could beat Goldman at its own game. He judged the effort to be at least a five-year project; he told Merrill’s board it would take him two years to fix the balance sheet and another three to take the firm to the next level. He eventually accepted the position and was paid a $15 million signing bonus and a $750,000 annual salary. The board also granted him options that would amount to another $72 million if he could bring Merrill’s shares above $100; they rose 1.6 percent to $57.86 on the news that Thain would come on board but still had a long way to go for that bonus to kick in.
As soon as he arrived, he moved quickly to shore up Merrill’s capital base, hoping to move a step ahead of the problem. His frame of reference was the end of Drexel Burnham Lambert, Michael Milken’s firm, which had filed for bankruptcy in 1990. “The demise of Drexel was really a liquidity problem,” he said at one of the firm’s Wednesday-morning risk-committee meetings, explaining how the firm didn’t have enough cash on hand. “Liquidity is the most important thing.” In December and January, Merrill raised $12.8 billion from the sovereign wealth funds Temasek Holdings of Singapore and the Kuwait Investment Authority, among other investors.
At the same time, he went about dismantling the O’Neal empire. When he first arrived, he noticed that the security guards at Merrill’s headquarters just across from Ground Zero always kept an entire elevator bank open exclusively for him. Thain walked over to one of the other elevators, and the moment he entered, all the employees shuffled out. “What’s the matter, why are you getting off?” he asked. “We can’t ride the elevator with you,” the employees told him. “That’s crazy, get back in here,” he said, as he instructed security to open up the elevator bank for everyone. He also went about slashing costs by selling one of the firm’s G-4 planes and a helicopter. No target was too small: The freshly cut flowers that were costing the firm some $200,000 a year were replaced with silk ones.
At the same time—in a paradox that was not lost on his staff—Thain began spending serious money on talent. In late April, with the approval of Merrill’s board, he hired an old friend from Goldman, Thomas K. Montag, as his head of trading and sales. To lure him away, the firm agreed to a signing bonus of $39.4 million, even though Montag wouldn’t begin work until August. In May, Thain would hire Peter Kraus, another Goldman man, whom he guaranteed a $25 million golden parachute.
And then there was his office. He and his wife had decided it was badly in need of a renovation. O’Neal’s white Formica furniture didn’t match the rest of the Merrill decor, and an adjacent conference room had been turned into O’Neal’s personal gym, complete with an exercise bike and weights. Thain hired celebrity interior decorator Michael S. Smith (whose clients included Steven Spielberg and Dustin Hoffman) to renovate his office, the adjoining conference space, and the reception area, including repainting,