Too Big to Fail [80]
For all Thain’s efforts to improve morale, he seemed to be achieving precisely the opposite. On the trading floor, “39.4”—a sly reference to Montag’s bonus—became a popular way to punctuate a sentence instead of using an expletive. While Merrill executives praised Thain for his prescient efforts to raise capital, there were grumblings that, as a manager, he was either too much of a micromanager or more likely the opposite, too detached. When he hired a new chief of staff, May Lee, he neglected to mention it to certain of the firm’s top inner circle. On her first day on the job, she took her seat at an executive committee meeting with all of them. Robert McCann, who ran the firm’s brokerage business, walked into the room, noticed the stranger, and looked at Thain quizzically. “Oh, I probably should have told you,” Thain said matter-of-factly, “this is my new chief of staff.”
He also rankled some executive committee members with his grandiose media appearances, in which he cast himself as the great savior of Merrill. He brought in Margaret Tutwiler, a former State Department spokeswoman in GHW Bush’s administration, to run communications. Within the firm some thought he might be angling for the Treasury secretary post if John McCain, the Republican front-runner, was victorious.
By that June 11, when Larry Fink made his enraged call about Black-Rock, it had become clear that the capital that Merrill Lynch had raised from Temasek and KIA, the sovereign wealth funds, back in December, was still insufficient—and that those deals were proving to be much more expensive than they appeared at the time. Under their terms, the investors were entitled to additional payouts to compensate for any dilution in their holdings if Merrill issued new shares at a lower stock price. Merrill’s stock price, meanwhile, had slid steeply. To add $1 billion in new capital, the firm might actually have to raise an amount nearly three times that to compensate the 2007 investors. Thain could also see that the second quarter was shaping up to be worse than the first, though he didn’t know how bad it would ultimately be.
Merrill’s problems were by now becoming evident to others on Wall Street, feeding a perception that Thain did not have a solid grasp on the firm. As the banking analyst Mayo told Thain on the conference call that got him in trouble with Fink: “It’s kind of ‘Raise as you go’ is the perception, as you have the losses, you raise more capital. Maybe it’s more of a perception of the industry, if you disagree. At what point do you say let’s just get far ahead of anything that could come our way?”
“I don’t agree with the way you characterized it,” Thain replied. “We raised $12.8 billion of new capital at the end of the year, we only lost $8.6 billion. We raised almost 50 percent extra and so we did raise more than we lost. The same actually was true at the end of the first quarter, we raised $2.7 billion, versus the $2 billion we lost. So we have been raising extra.”
But that would not be enough.
Several weeks after Merrill’s board had named Thain CEO, he was faced with an especially delicate task. Placing a call to his predecessor, Stan O’Neal (who had just negotiated an exit package for himself totaling $161.5 million), Thain asked if they might get together. Hoping to keep their meeting out of the newspapers, the two decided on breakfast in Midtown at the office of O’Neal’s lawyer.
After a few pleasantries, O’Neal stared levelly at Thain and asked, “So, why do you want to talk to me?”
Thain knew