Former Merrill Lynch CEO John Thain's estimate of losses in early December was only a fraction of the $15.3 billion loss that the brokerage giant later reported, Bank of America senior executives told CNBC.
Responding to Thain's interview on CNBC, during which he said Bank of America was well aware of Merrill's losses before the two firms merged on Jan. 1, these executives said that at a Dec. 8 board meeting, Thain proposed paying Merrill executives about $3 billion in bonuses before the merger was completed.
When Merrill's bigger-than-expected loss came to light in mid-December, these executives said they suggested Thain kill the planned bonuses or at least roll them back dramatically. Thain, however, insisted on making the payouts.
The bonuses stirred controversy because Merrill's bigger than expected loss prompted Bank of America to seek more government bailout money to complete the acquisition. Earlier this month, the government agreed to give Bank of America an additional $20 billion to absorb Merrill, which Bank of America agreed to buy last September amid the credit crisis.
Video: Watch Gasparino's report on Bank of America's response to Thain.
Meanwhile, the Securities and Exchange Commission has joined New York State in investigating the bonuses as well as when Merrill knew about the losses. As reported last week, New York Attorney General Andrew Cuomo is ramping up the investigation of Merrill bonuses because his office believes they could be "large, last-minute secret bonuses."
Bank of America spokesman Scott Silvestri said earlier Monday that the bank "had no legal right to challenge" the bonuses because they were paid out before Bank of America officially took over the brokerage firm.
"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation," Silvestri said.