page contents Mortgage News Digest: Rogue's Gallery of the Mortgage Meltdown - #7 John Thain

Monday, October 17, 2011

Rogue's Gallery of the Mortgage Meltdown - #7 John Thain

#Occupy Wall Street - want to direct your anger? 

John Thain - Lied about the value of ML
NOT ONE executive involved in the mortgage meltdown has been called to account for their actions leading to the destruction of the American financial system and our way of life.

John Thain - Pulled the Rug out from the ALT-A Mortgage Market, Lied about the Value of Merrill to BofA, Used TARP money to pay his bonuses and that of his executives.

John Thain is a wealthy man who enjoys his wealth and freedom while the mortgage industry and Bank of America deal with his mess.  He should disgorge all of his earnings and serve the same jail time as any street level loan officer would for fraud or mus-appropriating funds:  15 Years for each offense.

Crimes - 
  • Vastly over-inflated value of Merrill Lynch by concealing the losses in the CMBS section  (BofA paid a 70% premium to acquire ML, not knowing that it was foundering under mortgage losses - we know how this story progressed.)
  • Thain paid $4 Billion in TARP funds as bonuses to executives in a last minute payment concurrent with the BofA acquisition. 
In June, 2007, Merrill Lynch precipitated the beginning of the mortgage meltdown by refusing to purchase or fund loans from its correspondent lenders.  American Home Mortgage - the #1 private lender at the time, collapsed.  Merrill Lynch made a market in this product.  The sudden unilateral rescission of this Alt-A funding source without notice caused a sudden evaporation of profits and liquidity for all lenders.  This caused other banks to start wobbling. 

From Wiki:

Upon joining Merrill Lynch, Thain received a $15 million signing bonus. The firm announced that Thain would receive at least $50 million a year and could be paid as much as $120 million a year, based on the company's stock price. The Associated Press in 2007 identified Thain as the best paid among the executives of S&P 500 companies, as he had received $83.1 million. In 2007, John Thain earned a total compensation of $83,785,021, which included a base salary of $750,000, a cash bonus of $15,000,000, stock grant of $33,013,151, and options grant of $35,017,421.[13]

Thain suggested to directors that he receive a bonus in 2008 of as much as $10 million, because he "saved Merrill" by selling it off to Bank of America. After the compensation committee at Merrill resisted the request, Thain reportedly dropped his request on December 8, 2008.[14][15]

On January 22, 2009, it was revealed that, in early 2008, Thain spent $1.22 million in corporate funds to renovate two conference rooms, a reception area, and his office, including $131,000 for area rugs, a $68,000 antique credenza, guest chairs costing $87,000, a $31,000 commode, and a $1,100 wastebasket. Thain subsequently apologized for his lapse in judgment, and reimbursed the company in full for the costs of the renovation.[16][17][18][19]

Thain accelerated approximately $4 billion in bonus payments to employees at Merrill just prior to the close of the deal with Bank of America. Bank of America was aware of the decision, as the payout was reportedly one of the conditions under the merger agreement. Speculation mounted that TARP funds were used for the bonus payments, but the TARP recipients are yet to disclose how TARP funds were segregated, or what they were used for.

Where is he now?

John Thain's "House"
He's doing quite well at the helm of another company that received government assistance for poor lending practices - CIT Group, where he is Chairman and CEO.  This company was one of the biggest losers in the TARP lottery, costing taxpayers $2.3 Billion.

From Wiki 

In 2008, CIT became a bank holding company in order to qualify for, and ultimately receive $2.3 billion in Troubled Asset Relief Program (TARP) funds. It declared Chapter 11 bankruptcy on 1 November 2009, and with the consent of its bondholders proposed to quickly emerge from bankruptcy court proceedings. The Company emerged from bankruptcy 38 days later on December 10, 2009.[13]

On July 13, 2009, Bloomberg TV reported that CIT was asking for Federal Deposit Insurance Corporation loan guarantees.

On July 15, 2009 the common stock of CIT was halted on the New York Stock Exchange during trading hours with "News Pending". At 6:03 p.m. a press release was issued on the company's website stating that talks of a government bailout were unlikely. The company had been advised that there was "no appreciable likelihood of additional government support being provided over the near term."[14] CIT announced that it believed it was unlikely that it would receive further funding from the federal government, and CIT Group came very close to declaring bankruptcy.[15][16][17] It was rescued in a US$3 billion deal on 19 July 2009, via an agreement with the bondholders group, which included Pacific Investment Management Company (PIMCO) and some other top CIT holders.[18] CIT said it planned a comprehensive restructuring of its liabilities.[19]

On September 30, 2009, in its continuing struggle to avoid bankruptcy, CIT Group was reported to be in negotiations with Citigroup Inc., Barclays Capital, and its bondholders to secure rescue financing to comply with its filing to find a plan “acceptable” to the majority of a bondholder steering committee that provided it with the emergency cash by Oct. 1.[20]

On Sunday, November 1, 2009, CIT Group filed for Chapter 11 bankruptcy protection.[21][22][23] It filed in the United States Bankruptcy Court for the Southern District of New York along with CIT Group Funding Company of Delaware LLC.[24]

On December 10, 2009, CIT satisfied all of the conditions required to consummate the prepackaged Plan of Reorganization (the "Plan"). The distribution of CIT's new debt and equity securities took place in accordance with the Company's confirmed Plan and the new common stock commenced trading on the New York Stock Exchange (NYSE) under the symbol "CIT." All previously issued and outstanding common stock and preferred stock was cancelled.


Where do you go when you screw up on Wall Street?  You become the CEO of another company.

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