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The Collapse of Merill Lynch Now Told in ‘Crash of the Titans’

For many, many years, Merrill Lynch had good reason to be “Bullish on America.”

With more than 15,000 brokers and $2.2 trillion in client assets Merrill Lynch was the world's largest brokerage. It clawed its way to the top and revolutionized the stock market by bringing Wall Street to Main Street.

Source: amazon.com

But in September 2008 – at the height of the financial crisis, it ceased to exist as a separate entity when it was acquired by Bank of America.

The world, the company, the Street was in shock.

How could this American institution collapse almost overnight?

In his meticulously researched new book, Crash of the Titans: Greed, Hubris, The Fall of Merrill Lynch and the Near-Collapse of Bank of America, Greg Farrell reveals it all in never before reported detail.

In this guest author blog Farrell shares how his book came to be and if you continue on, you can read an excerpt from Crash of the Titans.

BEYOND THE "SHAMING OF JOHN THAIN"

Guest Author Blog
Guest Author Blog

In November 2008, just two months after Merrill Lynch struck a deal to sell itself to Bank of America for $50bn, an editor at the FT Weekend magazine asked me and a colleague, Henny Sender, to put together a profile of Merrill CEO John Thain.

The theme of the article was that Thain, by agreeing to sell Merrill, had made the right move over the tumultuous weekend of September 13-14, where Lehman Brothers CEO Dick Fuld had erred by stubbornly hanging on too long, to the point where Lehman collapsed in bankruptcy.

Over the course of several weeks, Henny and I discovered that the Thain story was more interesting than what was generally known. By late December both of us had learned that Thain’s support within Merrill was not particularly deep, and his support among outside investors had also eroded during the course of his year at the helm.

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When Thain was fired in late January, the story took on an entirely new trajectory. In March 2009, “The Shaming of John Thain”was published in the FT Weekend section, describing some of the challenges that undermined Thain at Merrill and eventually led him to run afoul of Bank of America CEO Ken Lewis.

When I started writing this book a year ago, it was clear that I would have to reconstruct the events leading up to the ouster of Stan O’Neal, Thain’s predecessor at Merrill, in October 2007.

I would also have to dig into the Bank of America side of the story, so I could explain to readers why Ken Lewis was willing to risk his bank’s financial health to pull off the acquisition of Merrill Lynch.

The deeper I dug into the story of how Merrill Lynch imploded, the more I was struck by how sad a saga it was. For the second half of the 20th century, Merrill Lynch was synonymous with the health of the nation’s financial markets and the optimism of post-war America.

But by the dawn of the 21st century, Merrill had begun to change. Instead of being a financial advisory business, which brought Wall Street to Main Street, it eventually morphed into a Wall Street investment bank, with management pursuing outsized profits in its sales and trading business. It was, of course, the reckless pursuit of profits in the fixed income markets that led to the firm’s downfall.

EXCERPT -" A TRIBE OF SMALL-TIME HILLBILLIES"

Excerpted from Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America. Copyright @ 2010 by Greg Farrell. Reprinted by Permission of Crown Business, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York.

Merrill Lynch and Bank of America were, in many ways, the odd couple of American finance.

Merrill was seen as epitomizing Wall Street excess, especially those stratospheric bonuses. New York bankers, on the other hand, saw the Charlotte-based B of A as a tribe of small-time hillbillies. Once the acquistion went through these mutual suspicions metasticized in countless ways, perhaps none more tellingly than the verbal combat between lawyers Pete Kelly of Merrill and Tim Mayopoulos of B of A.

PETE KELLY ARRIVED IN Charlotte from New York early the next morning. He reported to his new boss, Tim Mayopoulos, to learn more about what was expected of him.

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The meeting took place in a conference room on the fifty-seventh floor of the Bank of America building, just down the hall from Mayopoulos’s office.

Kelly was going to become general counsel to the investment banking unit of Bank of America–Merrill Lynch. Bill Caccamise, a BofA veteran who had been tapped for that job, would become chief counsel of the Merrill Lynch private client business.

Kelly was among the few Merrill Lynch lawyers who had been offered a position in the new organization, but it was only because John Thain and Greg Fleming had fought hard on his behalf that his appointment had been approved by Alphin and HR.

The Kelly decision embarrassed Mayopoulos, since he had to move Caccamise out of a position that had already been promised to him.

In recent weeks, Kelly had sensed some reluctance on the part of Mayopoulos to have him on his team. Now, alone with his new boss, Kelly watched that reluctance burst forth in a spasm of contempt.

“I picked you for this position,” Mayopoulos said with an edge in his voice. “You’re going to do the job the way I tell you to, and don’t forget it.”

“We’ll see about that,” replied Kelly, who knew he had been forced on Mayopoulos by Thain and Fleming.

“No. We won’t see about that. That’s the way it’s going to be. I know more about investment banking than you do. I’m better at this than you are!”

“If saying it makes it so,” snapped Kelly. “Otherwise, it’s up to the client to decide.”

“You need to manage your ambition. I’m going to be micromanaging everything you do, so don’t get cute with me. You’re going to do exactly what I tell you to. You’re going to hire the people I tell you to hire, and you’re not going to send a letter to any client, at any time, until I’ve approved it.”

“It’s not going to work that way,” said Kelly, whose Irish was now up.

“Yes, it is,” Mayopoulos hissed. “That’s the way we do things here. I don’t care who your friends are.”

"This place is a lunatic asylum. We have to get out of here. I met with Mayopoulos this morning and in the middle of the meeting, they took him out. It’s insane." -Lawyer, Merrill Lynch, Pete Kelly

Kelly could tell that Mayopoulos, even as a lawyer, wasn’t accustomed to pushback from subordinates. The general counsel was becoming enraged by Kelly’s responses. But Kelly had decided, before flying down that morning, that if he couldn’t operate the way he wanted to in his new job, then he didn’t want the position. He would dare Mayopoulos to fire him rather than conform to whatever management system they tried to cram down his throat.

After about an hour, Mayopoulos took Kelly to a different conference room, where they were joined by Caccamise and David Grimes, the chief operating officer of BofA’s legal department.

Now it was three against one, but the tone of the meeting turned more professional. Mayopoulos recommended which lawyers would be the best fit to work in Kelly’s unit, and Caccamise seconded those choices, having known the candidates from BofA Securities.

Kelly, who didn’t want to be forced into making rash personnel decisions about his unit, stood his ground.

“I don’t think I need you three guys in a room telling me how to run this unit,” he said. “I’ll figure it out on my own.”

“You just don’t get it, do you?” said Mayopoulos. “I decide how this is supposed to work, not you!”

“I’m responsible for this area,” Kelly insisted. “I’ll make the calls.”

They had come to an impasse, and Kelly felt Mayopoulos may have reached the breaking point with him.

The door opened, and Mayopoulos’s secretary entered the room. “Tim, Amy Brinkley needs you for a moment in your office. It’s important,” she said discreetly.

Mayopoulos was adamant as he left the conference room. “We’re going to finish this,” he snapped at Kelly. “Don’t you go anywhere.”

He strode down the hall toward his office and entered. When he saw Brinkley, his boss, he greeted her.

“Tim, Ken is replacing you as general counsel,” she said coldly. “He just decided this. Brian Moynihan is going to become the new general counsel.”

Mayopoulos was stunned and couldn’t even get a word out.

“You are terminated from Bank of America as of this moment, and you are to leave the premises immediately. You can’t take anything with you. There’s someone from HR outside the office who has your severance papers.”

And with that, Brinkley left, and in walked a man from Steele Alphin’s department holding a sheaf of papers. He took Mayopoulos’s corporate ID card, company credit card, BlackBerry, and office keys, and put them down on the desk. Then, having done everything but read him his Miranda rights, he escorted Mayopoulos to the elevator and down to the executive garage in the basement of the building, and got into Mayopoulos’s car so that he could physically escort him off the premises.

Kelly and Caccamise were still waiting in the conference room about thirty minutes later when Mayopoulos’s secretary returned. “Mr. Mayopoulos won’t be back today,” she informed them, and then closed the door.

Grimes left.

Kelly looked at Caccamise. “I don’t know what my next move here is,” he said. But Caccamise said nothing. After about fifteen minutes, the same woman returned. “Could you please follow me?” she said, leading the two lawyers up to a smaller conference room on the fifty-eighth floor, the executive suite.

On the way up the stairs, Kelly figured out how it would go down: They’d bring him to the executive floor, shoot him, and give the job to Caccamise.

The two men arrived at a small conference room to find Brian Moynihan sitting there, immersed in paperwork. Kelly had met Moynihan several times through the transition process.

“Tim’s no longer with the company. I’m the general counsel now,” said Moynihan, as Kelly just stared. “I’m really busy right now, so I don’t have much time to talk.”

“Well, uh, you’re the third general counsel I’ve been reporting to today,” said Kelly. “I was just told what my job was by Mayopoulos, but I’m not sure he even wanted me working for him.”

“Don’t worry about it,” said Moynihan, who appeared to be distracted with a number of issues. “I’ve heard good things about you. Forget what Tim said. I’m busy, so we’ll talk another time, but I’m glad you’re on the team.”

Kelly and Caccamise left the office. Kelly went straight to the airport, where he called Fleming.

“Greg, this place is a lunatic asylum. We have to get out of here. I met with Mayopoulos this morning and in the middle of the meeting, they took him out. It’s insane!”

Email me at bullishonbooks@cnbc.comAnd follow me on Twitter @BullishonBooks

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