Mr John Thain 52, has a CV to die for. He is for the moment, the Chairman and CEO of Merrill Lynch. For the burdens of this office he has in excess of US$50 million per year in compensation (Highest paid CEO in US 2007 says AP). Previously, At Sacks of Gold he was President, COO and CFO and therefore a firm and resolute friend of Hank Paulson. He was CEO of NYSE. His favourite band is Led Zeppelin.
On January 15, 2008 -- Thain engineered the sale of US $6.6 billion of preferred shares in Merrill Lynch to a bunch of Japanese, Kuwaiti and other investors
"...These transactions make certain that Merrill is well-capitalized." he said.
On March 8, 2008 -- Thain was interviewed by the French Le Figaro newspaper.
"...Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market."
Thain in his time has been a frequent visitor to the Orient , whilst in Tokyo on April 8th 2008 reuters reported him saying..
"We deliberately raised more capital than we lost last year ... we believe that will allow us to not have to go back to the equity market in the foreseeable future."
On July 17, 2008 Mr Thain took a conference call after posting Merrill's second-quarter results...
"Right now we believe that we are in a very comfortable spot in terms of our capital." he also said that he would not do anything "dumb" like sell assets "at any price we could get".
Those Q2 results were not good. Mr Thain reported a loss of $4.7 billion. Eleven days later Mr Thain was reporting a US$5.7 billion write-down and the issuance of $8.5 billion of stock.
On Monday Mr Thain, agreed to sell a pile of mortgage-backed collateralised debt obligations(CDO's) with a notional value of $30.6 billion to a distressed debt investor, Lone Star Funds (LSF) , for the princely sum of $6.7 billion he also lent LSF 75% of the money they needed to buy them .Remember that July 17th conference call when Mr Thain said that he would not do anything "dumb" like sell assets "at any price we could get".
Barry Ritholtz ( chief market strategist for Ritholtz Research) thinks that because of prior write downs and the only recourse in default by the buyer is to return the paper, that the actual sale price is about 6 cents on the dollar.
Now is this US$50Mn a year CEO Mr Thain, is he a liar? Or is he a fool ?
The SEC needs to investigate him, rather than short-sellers.
Merrill Lynch has a market capitalization of US$24 billion and has raised US$30 billion since December just to keep making their payroll and put petrol in the chauffered limos. How long will investors be duped into supporting this disaster? You can be sure that the other suspects Citicorp , Lehman Brothers , Washington Mutual will be announcing even more massive write-downs and capital dilution in the coming weeks.
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