Former Merrill CEO Thain Leaving Bank of America

Former Merrill Lynch CEO John Thain agreed to resign from Bank of America less than a month after the brokerage giant was acquired by the nation's largest bank for $19.4 billion.

AP John Thain and Ken Lewis

The decision came after Thain met this morning with Bank of America CEO Ken Lewis to discuss his future at the recently merged firms.  Thain became Bank of America's head of global banking, securities and wealth management after the merger closed on Jan. 1.

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"Ken Lewis flew to New York today, met with John Thain, and it was mutually agreed that his situation was not working out, and he would resign," Bank of America spokesman Robert Stickler said. Brian Moynihan was named as Thain's successor.

Thain's resignation comes less than a week after Bank of America was forced to seek $20 billion in government bailout money to absorb Merrill, which it agreed to buy last September amid the credit crisis.

The extra government money was needed because of an unexpected $15.31 billion loss by Merrill in the fourth quarter. The government also agreed to share in losses on about $118 billion in Merrill debt.

Lewis expressed dismay last week about the scope of losses from mortgages and toxic debt on Merrill's books. Investors and analysts said the losses made Thain's position tenuous.

Lewis' own job status has come under question because of the Merrill acquisition and the sharp decline in Bank of America's stock.

"This is a huge crisis of credibility," said David Dietze, chief investment officer at Point View Financial Services in Summit, New Jersey. "Someone has to fall on a sword."

Other former Merrill executives who left previously include Robert McCann, who was to lead the combined brokerage, and investment banking chief Greg Fleming.

However,Tom Montag, another former Merrill executive who took over Bank of America's sales, trading and research operations, will remain at the bank and report to Lewis.

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Merrill, meanwhile, decided to move up its year-end bonuses, doling out cash just three days before it was officially acquired by Bank of America, it was reported earlier Thursday. New York Attorney General Andrew Cuomo has ramped up his investigation of what his office believes could be "large, last-minute secret bonuses."

CNBC has also learned that Thain spent $1.22 million redesigning his office when he became CEO of Merrill Lynch a year ago. Click here to see what he bought.

People at Bank of America say they discovered that Merrill's financial condition deteriorated significantly sometime in mid- to late December. They also realized that Merrill's losses in the fourth quarter would be so substantial they would need federal aid to make the deal work.

Top officials at the firm then went to officials in the federal government to request the additional capital infusion when it became clear that massive fourth-quarter losses at Merrill might doom the merger.

Since news of the capital infusion became public last week, Wall Street has been buzzing about the cause of the losses, and how they could have gone unnoticed when Bank of America had done its due diligence the weekend the merger was first announced in September.

While people close to Merrill do not know why Bank of America didn't discover the magnitude of the losses until recently, they have determined the source of the red ink. These sources say it's a combination of past investments under former CEO Stan O'Neal, who left the firm about a year ago, as well as Thain.

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Bank of America , the largest U.S. bank, lost $1.79 billion, or 48 cents per share, in the fourth quarter, compared with a year-earlier profit of $268 million, or 5 cents. Net revenue increased 22 percent to $15.68 billion.

At Merrill, the loss was $9.62 per share, driven by significant writedowns of troubled assets.

Bank of America announced the results hours after it won $20 billion in new capital from the government's $700 billion Troubled Asset Relief Program (TARP).

"They were probably one of the best banks out there, balance sheet-wise, until they did the Merrill deal," said Cassandra Toroian, chief investment officer at Bell Rock Capital in Paoli, Pennsylvania, which owns the bank's shares.

Speaking of the results, she added: "None of it's a surprise at this point. I think it's really unfortunate that they had to cut the dividend."

The bank slashed its quarterly dividend to a penny from 32 cents.

With the latest capital infusion, Bank of America has taken $45 billion in TARP money, the same amount as Citigroup Inc , which won its own rescue package in November.

The Bank of America rescue calls for the government to share in losses on $118 billion in residential and commercial mortgages, derivatives and corporate debt.

Bank of America will absorb the first $10 billion of any losses, the government takes the next $10 billion, and the government 90 percent of any remainder. Bank of America said the rescue package will help it operate as normally as possible.

The bank said it had extended more than $115 billion in new loans in the quarter and was adding mortgage staff to accommodate an increase in refinancings.

—Reuters contributed to this report

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