Financials

Thain: Loss Not My Fault, BofA Knew Of Problems

Former Merrill Lynch CEO John Thain told CNBC that the brokerage firm's huge fourth-quarter loss resulted from investments made by his predecessor and that Bank of America was well aware of the growing losses before it acquired Merrill Lynch on Jan. 1.

In an exclusive interview, Thain also said he was surprised to be let go just 20 days after the merger with Bank of America and had no regrets about selling Merrill to the banking giant last fall.

John Thain
CNBC.com

"We were only 20 days into the combination," Thain said. "I had agreed to stay because I thought there was a great opportunity—for the companies...So, I was surprised."

Thain also said BofA saw the same profit and loss reports that Merrill executives saw, and that the bank was totally aware of the $15.31 billion loss that Merrill disclosed earlier this month.

When asked if BofA CEO Ken Lewis was specifically aware, Thain said, "Well, let me say it this way. The—the acting chief financial officer had come from Bank of America. He was their formal—former chief accounting officer. He and his team, which were—for all practical purposes, our day-to-day CFOs, they had direct access to our daily P&Ls, to our positions, to our marks."

Thain's insistence that Bank of America knew the extent of Merrill's condition puts added pressure on Lewis, who has been criticized over BofA's falling share price and increasing speculation about his future as chairman and CEO.

But Bank of America senior executives, responding to the interview, told CNBC that Thain's estimate of the loss in early December was only a fraction of what the brokerage firm eventually reported. They also said Thain insisted on paying $3 billion in bonuses to Merrill executives even after the size of the loss became known. (Click here for full story.)

Video: Watch the entire interview with John Thain.

Thain blamed the size of the $15 billion loss on investments made by his predecessor, Stanley O'Neal, whom he had replaced at Merrill a year ago. Those legacy positions, he said, had weakened in the last three months. Thain also said that he had not added to those risky positions during his tenure at Merrill.

Thain also stood by the bonuses paid out to top executives at Merrill Lynch shortly before the merger with BofA closed on Jan. 1, saying even in troubled times you have to "pay" to keep top talent. He said the bonuses were lower than ones paid out in 2007.

Bank of America spokesman Scott Silvestri said today that, "John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation," he said. "We had no legal right to challenge it."

When asked if he had an regrets of the Merill Lynch deal with BofA. Thain said no. "I think there is—no question that—the decisions that we made on that weekend in September were the best interests of Merrill shareholders, Thain said. "They were in the best interests of Merrill's employees. And I do not regret for one moment—initiating that first phone call with Ken and ultimately getting this deal done over that weekend."

Thain's interview came the same day that CNBC obtained a memo Thain sent to Merrill Lynch employees saying the acquisition of the brokerage giant by Bank of America was the right thing despite the huge losses.

Thain also said he'll reimburse Bank of America for the $1.2 million renovation of his office last year, which sparked controversy last week after it was reported by CNBC.

He explained the reasoning for the rennovations by saying he needed to change the office of his predecessor, Stan O'Neill. "Well—his office was very different—than—the—the general décor of—Merrill's offices," Thain said. "It really would have been—very difficult—for— me to use it in the form that it was in. And—you know, I—it needed to be renovated no matter what. It would have been better for me to simply-- I should have— simply paid for it myself."

The renovation expenses, including a reported $35,115 commode and a $1,405 trash can, have become the latest symbols of corporate excess. News of the expenses surfaced on January 22, the same day Thain was ousted as Bank of America's head of global banking, securities and wealth management, and just three weeks after the $19.4 billion merger closed.

Thain also said in the memo the media had inaccurately reported his company's year-end bonus payments. He said the 2008 bonus pool was 41 percent lower than 2007, and the pool was substantially smaller than the merger agreement permitted.

He did not specify how those comments differed from media reports.

On the subject of last year's "large and unfortunate" fourth-quarter losses, Thain blamed "legacy positions" and " market movements."

Bank of America has been hit with several lawsuits over its failure in December to disclose Merrill losses and talks with the U.S. Treasury Department, which led to a $20 billion capital infusion from the government. The board of the Charlotte, North Carolina-based bank is scheduled to meet on Wednesday

—Reuters contributed to this report.