Thain’s Future at BofA To Be Decided This Morning
Bank of America CEO Ken Lewis will meet with former Merrill Lynch chief John Thain this morning to discuss Thain's future at the recently merged firms, and senior executives say Thain is likely to leave, CNBC has learned.
The emergency meeting is expected to be held at 11:30 am EST.
Thain, who was Merrill's CEO, became Bank of America's (NYSE: BAC) head of global banking, securities and wealth management after the merger on Jan. 1.
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The meeting comes less than a week after Bank of America posted its first quarterly loss in 17 years and slashed its dividend. BofA also received a multibillion-dollar lifeline from the U.S. government to help absorb Merrill Lynch, which lost a record $15.31 billion in the quarter.
The relationship between Lewis and Thain has been strained because of Merrill's unexpectedly large loss.
It was also reported that Merrill decided to move up its year-end bonuses, doling out cash just days before it was officially acquired by Bank of America. CNBC has also learned that Thain spent $1.22 million redesigning his office when he became CEO of Merrill Lynch a year ago.
People at Bank of America say they discovered that Merrill's financial condition deteriorated significantly sometime in mid- to late December and that Merrill 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.
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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.
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 reportFor more stories from CNBC, go to cnbc.com.