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The Year in Business: 2008

December 31, 2008 10:10 AM

ABC News’ Daniel Arnall reports: 2008 has been the most important year in the lifetime of every working-age American. It is the definition of superlative.

Some of the highlights and headlines that took our breath away:

• Banks failed. Washington Mutual was the biggest failure ever,  and 24 other (mostly smaller) banks got the FDIC treatment during the year.
• A bear market settled in. Investors saw trillions of dollars disappear as global stock markets shed more than 50 percent of their peak value (S&P was down 51.9 percent  Nov. 20).
• Volatility became commonplace. The Dow saw its biggest one-day point gain (936.42 points Oct. 13) and point loss (777.68 Sept. 29) this year. A wild ride.
• Someone made off with $50 billion. Bernie Madoff’s alleged global scam bilked an unimaginable amount of money from the rich and not so rich.
• Bear Stearns becomes a rug in JPMorgan’s parlor after a Fed-Treasury-engineered fire sale during a springtime run on the bank.
• Insurance giant AIG is nationalized. Regulators say this firm -- the bookie for hundreds of billions in credit default swaps -- was too big to fail. So  taxpayers  have  already pushed more than $100 billion in chips onto the table.
• Lehman Bros. becomes Wall Street’s black sheep. The government allowed this storied investment bank to collapse, so it filed for Chapter 11  Sept. 15. That was the straw that broke Wall Street’s back, sparking a global sell-off that resulted in worldwide stock losses that pretty much no one could have imagined.
• Money for nothing. The Federal Reserve set its target rate for a key interest rate at 0 to .25 percent -- the lowest level in the history of the central bank.  It hoped the low rates would spur borrowing and thus the economy, but banks seem unwilling to lend for fear that borrowers  --  be they other banks, businesses or consumers --   will not be able to pay them back.
• Bailout bonanza. By the end of the year, 204 banks had joined the Treasury’s roster of bailout banks. The total amount of capital invested was $172 billion, almost exactly what the government spent on the Departments of Agriculture, Education and State during 2008.
• Faster than we can print it. The Fed flooded the globe with dollars,  hoping to shore up crumbling faith in the financial infrastructure. It increased its balance sheet from about $850 billion to more than $2.4 trillion in just eight months.
• Your house worth less. In the past year,  home prices across the nation lost value at an astonishing pace. Last year, people were desperately looking for a bottom to the market. By the end of 2008, people had stopped predicting a turnaround, resigned to another year of falling prices.
• Like a derrick, up and down. In July, record oil ($145 a barrel) and gas ($4.11 a gallon) prices had people gasping. By December, a recessionary cutback in demand pushed prices to five-year lows: oil ($35) and gas ($1.61).
• Price shocks. The run-up in energy prices pushed inflation into the headlines and had the Fed raising interest rates to keep things in check.  Despite the fact that little time has elapsed, deflation is now a concern that’s on the minds of many economists.
• Pink slips like confetti. The economic slowdown is hitting American workers hard. Every month of 2008 has seen negative numbers -- so far almost 2 million jobs have been lost. And there are millions more to come as many people believe unemployment will reach 9 percent by mid-2009.
• Register recession. For almost a decade, the American consumer has been the engine that’s kept the economy going. With credit diminishing and fears about jobs and home values rising, the tank is empty. Retail analysts say a dismal holiday shopping season (the worst since at least 1970) will set off an avalanche of store closings and possibly push the commercial real estate market into a tailspin.
• Emergency roadside service. The U.S. auto industry is completely broken. After a decade of turnaround plans, it became apparent that GM, Ford and Chrysler weren’t turning fast enough. Consumers bought cars and trucks at an annual pace of about 12 million units, but the companies need 16 million units sold to remain solvent. By year’s end, the Big Three were begging Congress and the administration for a bailout and still can’t guarantee that the industrial engine will be jump-started. (Are you hoping to get an auto loan? Let us know.)
• Stock Market Losses. Click on the chart below for a look at some key numbers for 2008.

December 31, 2008 | Permalink | User Comments (11) | TrackBack (0)

Median Home Price Drops to $181,300

December 23, 2008 12:09 PM

ABC News’ Charles Herman reports: Perhaps it is not too surprising considering the surge in unemployment, the crash of the stock market and the unavailability of credit, but home sales in November came in even worse than expected.

The National Association of Realtors reported that sales of existing homes fell 8.6 percent in November to a seasonally adjusted annual rate of 4.49 million units in November. As has happened on several occasions recently, the actual numbers were significantly lower than analysts had expected. The pace of sales of existing homes is down 10.6 percent from a year ago.

“The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level,” said Lawrence Yun, the trade group’s chief economist, in a statement.

As sales dropped, so too did prices, to the lowest prices since February 2004. The national median sales price was $181,300 in November, down 13.2 percent from a year ago when it was $208,800. That year-over-year drop was the largest since the trade group started keeping records in 1968.

The realtor group attributes some of that drop in price to the surge in sales of foreclosed properties selling at a discount. “Sales are rising only in areas with large numbers of distressed properties as bargain hunters take advantage of discounted home prices,” Yun wrote, signaling out hubs of foreclosure activity -- California, Nevada, Arizona and Florida.

And the total number of homes increased in November and that means it’s still a buyers market, if they can get a mortgage. There are now 4.20 million existing homes available for sale, an 11.2-month supply at the current rate of sales, up from a 10.3-month supply in October. Economists like to see five to six months’ worth of supply for a balanced market.

And the news was just as bad for new-homes sales, which were also released this morning. The government reported that sales dropped 2.9 percent from October to a seasonally adjusted rate of 407,000.  Compared to a year ago, new-homes sales have dropped 35.3 percent. That’s the slowest sales pace since January 1991.

The median sales price for a new home fell to $220,400, down 11.5 percent from a year ago. There are now 374,000 homes available for sale.  At the current sales rate, it would take 11.5 months to work through that supply.

“Builders are facing intense competition in many markets from foreclosed homes that are relatively new, and their only option is to slash prices even further,” wrote Richard Moody, chief economist with Mission Residential. “This situation is likely to prevail over much if not all of 2009, making it another tough year for home builders.”

Bottom line, the housing market has not improved. Lower rates have so far not translated into a surge in home sales. Prices are expected to keep dropping.

December 23, 2008 | Permalink | User Comments (31) | TrackBack (0)

Michigan Tops Unemployment Rolls

December 19, 2008 1:05 PM

ABC News’ Scott Mayerowitz reports: Michigan once again has the dubious distinction of being the nation’s most unemployed state. Last month, Michigan’s unemployment rate climbed from 9.3 percent to 9.6 percent, overtaking Rhode Island, where unemployment remained steady at 9.3 percent.

Overall, 37 states and the District of Columbia recorded month-over-month unemployment rate increases, five states saw decreases and eight states had no change, the Bureau of Labor Statistics reported today.

Four additional states had unemployment rates of 8 percent or higher: California, South Carolina, Oregon and Nevada.

Wyoming posted the lowest unemployment rate, 3.2 percent, followed closely by North Dakota and South Dakota, at 3.3 and 3.4 percent, respectively.

Virtually every state saw an increase in unemployment compared to November 2007, right before the recession began.

The largest jump came in Rhode Island, where unemployment was 5.2 percent last November and now is 9.3 percent. It was followed by North Carolina, which saw a 3.2-percentage point increase and Georgia and Idaho, which both saw 3-percent increases.

If that isn’t enough data for you, the full report can viewed at: http://www.bls.gov/news.release/laus.nr0.htm

There was more bad news from the Labor Department today: The number of mass layoffs -- defined as 50 people or more from one employer -- increased in November.

Last month, employers took 2,328 mass layoff actions, up 188 from October. Those layoffs resulted in 224,079 workers losing their jobs.

More information on the layoffs can be found at: http://www.bls.gov/news.release/mmls.nr0.htm

December 19, 2008 | Permalink | User Comments (10) | TrackBack (0)

Chrysler to Temporarily Shut Down Plants

December 17, 2008 5:32 PM

ABC News' Charles Herman reports: Chrysler has announced that at the end of this Friday's shift, all manufacturing facilities will be closed until January 19, 2009.

Chrysler has 30 facilities in North America.  All will close temporarily.

The plant in Windsor, Ontario -- which makes minivans -- and the Detroit/Connor Assembly -- which builds engines and Vipers -- will close through the month of January.  The two plants in Toledo will be shut down until January 26. 

This will impact 46,000 UAW workers, according to Chrysler.  Chrysler says these employees will receive state unemployment benefits as well as supplemental payments from Chrysler during the layoff according to a union negotiated formula. 

These workers will not be receiving their regular income.  There will be an unknown number of white collar workers who will not be working as well, but the expectation is that they will continue to receive their regular salaries during this time.

As for the number of cars and trucks not being built -- the privately held company (which wants billions of your tax dollars) will not disclose that information.

The company says dealers are telling them there are buyers out there, but they can't get financing and as a result, have lost 20 to 25 percent in sales.  One bankruptcy expert predicted that while Washington tinkers with how much aid to provide and under what conditions, the auto companies will continue their game of chicken.

General Motors is also putting the brakes on production.  According to the Associated Press, GM is halting construction of a factory in Flint, Mich., set to make 1.4-liter engines for the Chevrolet Cruze and the Chevy Volt plug-in electric car. 

December 17, 2008 | Permalink | User Comments (134) | TrackBack (0)

Did the SEC Miss the Obvious When It Came to Madoff?

December 16, 2008 8:28 PM

ABC News' Charles Herman reports: If you are fascinated by the Madoff scandal, this makes for good reading.  The SEC released a statement on the case announcing that the inspector general for the agency will now do a review of the past allegations against Madoff made to the SEC and why those allegations were not found to be credible by SEC staff.

The Commission reports that it "has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action."

The SEC also directs any staff that had more than "insubstantial contact" with Madoff or his family to recuse themselves from the current investigation.

Here's the SEC's full statement:

"STATEMENT REGARDING MADOFF INVESTIGATION

"Washington, D.C., Dec. 16, 2008 – Securities and Exchange Commission Chairman Christopher Cox issued the following statement today concerning its ongoing investigation in the case of SEC v. Madoff:

"Since the Commission first took emergency action against Bernard Madoff and his firm, Bernard L. Madoff Investment Securities, LLC, on Thursday, December 11, every necessary resource at the SEC has been dedicated to pursuing the investigation, protecting customer assets and holding both Mr. Madoff and others who may have been involved accountable.

"SEC investigators are currently working with the trustee and other law enforcement agencies to review vast amounts of records and information involving Mr. Madoff and his firm.  Those records are increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators.  Although the information I can share regarding an ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.

"Since Commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff's vast scheme remained undetected by regulators and law enforcement for so long.  Our initial findings have been deeply troubling. The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action.  I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.  Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

"In response, after consultation with the Commission, I have directed a full and immediate review of the past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.

"The Commission believes strongly that it is vital that SEC investigators, examiners, and enforcement staff be above reproach while conducting their duties, in order to ensure the integrity and effectiveness of the SEC.  In addition to the foregoing investigation, I have therefore directed the mandatory recusal from the ongoing investigation of matters related to SEC v. Madoff of any SEC staff who have had more than insubstantial personal contacts with Mr. Madoff or his family, under guidance to be issued by the Office of the Ethics Counsel.  These recusals will be in addition to those currently required by SEC rules and federal law."

December 16, 2008 | Permalink | User Comments (38) | TrackBack (0)

Madoff's $50 Billion Swindle Yields Victims Around the World

December 14, 2008 1:06 PM

ABC News' Joel Siegel reports: The scope of Bernie Madoff's $50 billion Ponzi scheme is becoming clearer, and it's enormous. Newspapers and Web sites from around the world today are filled with stories about new victims.

In South Korea, institutional investors may have lost $100 million. French bank BNP Paribas, Tokyo-based Nomura Holdings and Zurich's Neue Privat Bank also suffered losses.

Spanish newspapers reported that a fund run by leading bank Santander was heavily exposed and that investors in Spain risk losing about $3 billion. And Swiss bankers face losses of up to $5 billion.

Among the boldface names who have lost money are Kay Windsor women's apparel founder Carl Shapiro, who lost $150 million to $400 million; and Nine West founder Jerome Fisher, who lost $150 million, the New York Post reports. Sen. Frank Lautenberg's office has confirmed he had an account with Madoff, and reportedly so did a former owner of the Philadelphia Eagles.

Irwin Kellner, the chief economist of MarketWatch.com, already has filed a lawsuit, claiming a $3 million loss.

The New York Times quotes associates of Mets owner Fred Wilpon as worrying that Wilpon's losses might affect the operation of the team -- though Bob DuPuy, Major League Baseball's president and chief operating officer, told The Times despite Wilpon's losses, baseball officials "expect it to be business as usual" for the Mets.

“Any fraud that has been committed against Fred is something of deep distress to all of us and we feel very badly about the entire matter, but we all believe that this will not affect the team,” DuPuy said.

Less well-heeled people lost money, too. The New York Daily News has the story of a retired carpet salesman and his wife from Long Island, N.Y. and Boynton Beach, Fla., whose life savings of nearly $1 million is gone.

"Two days ago, it was all wiped out," Arnold Sinkin, 76, told the paper.

"Nobody in our lives gave us anything. We worked hard for every penny that we had," Joan Sinkin, 75, said through tears, according to The Daily News. "There is really no more lowlife than that man. My whole life fell apart."

And all of this might only scratch the surface.

Many charities are believed to have lost lost money to the swindle.

Jerry Reisman, an attorney with Reisman Peirez & Reisman in Garden City, N.Y., who is representing people who invested with Madoff, told Newsday that "one of the wealthiest real-estate families on Long Island" had been "totally wiped out" by Madoff. He declined to name the family, who are clients of his.

Long Island attorney Mark Mulholland told Newsday he has been receiving phone calls from people across the United States, Europe and South America claiming to be victims of Madoff.

"Based upon the phone calls we are having and the victims we have been in touch with in the last 48 hours, when the smoke clears, the [dollar figure of the alleged fraud] could be far higher than anyone could imagine," Mulholland said.

December 14, 2008 | Permalink | User Comments (91) | TrackBack (0)

Bankruptcy Options for General Motors and Chrysler

December 12, 2008 8:42 AM

ABC News’ Charles Herman reports: Several bankruptcy and reorganization experts said General Motors and Chrysler could file for bankruptcy very quickly. One thought GM could do so by the end of the month. Ford is not expected to file for bankruptcy in the immediate future.

Many of these experts had very bleak outlooks for Chrysler if it did not get a bailout. “Chrysler is a company that will not be existing, whether bankrupt or not, in 12 months’ time,” said Edward Altman, a bankruptcy expert at NYU business school.

Kimberly Rodriguez, a principal with Grant Thornton’s auto division, said that Chrysler’s parent company, Cerberus, would let the manufacturing part of Ch rysler “hit the wall” and walk away with GMAC, the financing division it shares with General Motors. “There is no Chapter 11 solution for Chrysler,” she said. “Chrysler will either sell its components or liquidate. There are not other viable options.”

Chapter 11 bankruptcy allows a company to reorganize and renegotiate through a court-approved plan. One option under Chapter 11 protection is to liquidate. Chapter 7 is liquidation. A company can enter Chapter 11 and then begin to liquidate without officially changing status to Chapter 7.

In order to successfully engineer a Chapter 11 bankruptcy, companies need what is called “debtor-in-possession” financing, usually referred to as DIP. This is money provided by a financial institution like JP Morgan to a company in bankruptcy so it can continue to operate -- for example, pay employees -- while restructuring. In normal economic times, DIP financing is considered super safe as that institution is first in line to be repaid and takes precedent over any other claim against a bankrupt company. A bankrupt company has to pay the DIP in full and in cash before it can even emerge from bankruptcy.

But these are not normal economic times and the number of financial institutions providing these sorts of loans has dropped from 30 to 50 firms a year ago to probably less than half a dozen. If a company can’t secure DIP financing, it might have to go right to liquidation. In fact, there has been an increase in liquidations this year. With banks still hording cash, getting DIP financing could be challenging.

So what does this mean for General Motors if it files for bankruptcy? Many experts believe the government needs to provide the DIP money necessary for the company to reorganize under the protection of bankruptcy. It would put taxpayer money at risk, but compared to the bailout plan that just failed, taxpayer dollars would be the first to be paid back. And with the government providing the money, it would have even more say over how the company reorganizes compared to the creation of a “car czar.”

But the amount of money needed would far exceed the paltry $14 billion Congress rejected, perhaps along the lines of $60 billion for GM alone. If Congress couldn’t approve a $14 billion bridge loan, would it approve $60 billion? That’s the rub. But again, in bankruptcy, union contracts could be renegotiated, debts could be reduced, operations sold off. There is more flexibility to change in bankruptcy than would have been the case with the bridge loan and the car czar. The government might also have to be the backstop for things such as car warranties so that car buyers don’t stay away from the Detroit 3 dealerships.

As for the idea floated by some members of Congress that a “prepackaged bankruptcy” could be done, the reaction was that Congress is not being realistic -- or even understands what it is talking about. To do this, General Motors would need to secure the financing for a bankruptcy before even going into bankruptcy.  It would also need to negotiate with all the stakeholders -- union, vendors, suppliers, debtors, dealers -- and get agreements in writing before filing. Basically, GM would have to do everything it could do in bankruptcy without the “stick” of bankruptcy.

For more details, read this story on ABCNews.com.

December 12, 2008 | Permalink | User Comments (20) | TrackBack (0)

Automakers: All for One and One for Parts?

December 10, 2008 6:00 AM

ABC News’ Alice Gomstyn reports: In the dog-eat-dog world of big business, you don’t often hear about a company sticking up for a rival. Yet, earlier this week, Ford declared that it supported government help for General Motors and Chrysler, even while Ford itself said it could do without the short-term loans now under consideration by Congress.

Ford has made clear that it doesn’t want to see its cross-town competition put out of business  ...  but don’t start singing Kumbaya yet. On Ford’s part, it’s not exactly a selfless move. Among the Detroit 3, there is substantial overlap among auto parts suppliers, and if even one domestic automaker collapses, parts suppliers – which are already struggling because the automakers have cut down on production and their purchase of supplies in recent years – could find themselves going under, too.

“It would be customary for the (bankrupt automaker) not to make checks out to the suppliers for parts that have been shipped over the last two months and the supplier would lose all that cash,” said Craig Fitzgerald, an auto analyst at Plante & Moran PLLC in Southfield, Mich. “For many of them, that would be the straw that breaks the camel’s back -- that will either force them into bankruptcy or force them into liquidation.”

Without the suppliers, a surviving automaker  --  ie. Ford  --  would find it nearly impossible to get the parts it needs to keep producing its cars.

“It has the risk to potentially shut down many or all of Ford’s plants,” Fitzgerald said.

Ford has another motivation to help keep its competition afloat  --  to meet future government fuel economy standards, the automakers may collaborate on developing fuel-saving technology.

“For those kinds of R&D projects, there’s no competitive advantage,” Fitzgerald said. “They’d just as soon share those costs.”

In the meantime, some, including “Bailout Nation” author Barry Ritholtz and Edward Altman, a finance professor at New York University’s Stern School of Business, continue to argue that bankruptcy is still the best option for the auto industry.

Both Ritholtz and Altman say that, through a bankruptcy, the government could take the role of “debtor-in-possession” and lend the bankrupt company money.

Through its DIP status, the government would later be first in line to get its money back, Altman said during testimony before Congress last week, while the bankrupt company would get more time to pay off other creditors and more flexibility to renegotiate its pension and health care claims.

It’s a better alternative, he said, to “a highly controversial government bailout,” which would not offer the same protections as a Chapter 11 bankruptcy filing.

And, Altman said, even with the government bailout, GM and Chrysler are “doomed to eventually file for bankruptcy” anyway.

“The management and boards of these two firms, which until recently have been in a state of denial, should face up to the reality of their dismal outlook,” he said.

Altman is one of many to criticize the management of the automakers and some -- including members have Congress-- have gone as far as to say that the companies' chief executives should resign.

There's at least one person, however, arguing otherwise: Lee Iacocca, the former president of Ford and the former chairman and CEO of Chrysler. Iacocca was at Chrysler's helm when the company lobbied -- and later received -- a government bailout in the late 1970s.

In a statement yesterday, Iacocca defended the Big 3's chiefs, saying that they were "by far the best shot we have for success."

“Having been there, I do not agree with the sentiment now coming out of Congress that the management should be changed as a condition of granting loans to the Detroit automakers. You don’t change coaches in the middle of a game, especially when things are so volatile," Iaccoca said.

“The companies may not be perfect but the guys who are running them now are the only ones with the experience and the in-depth knowledge and understanding of how the car business really works," he said. "...I say give them their marching orders and then let them march." 

December 10, 2008 | Permalink | User Comments (10) | TrackBack (0)

Uncle Sam's Credit Card Rate? Zero Percent

December 09, 2008 4:51 PM

ABC News' Daniel Arnall reports: For the first time ever, the Federal Government was able to borrow money from the open market for FREE. That’s right… no interest payment at all for Uncle Sam.

The most recent auction of $30 billion worth of 28-day Treasuries had four-times the number of buyers than they had bonds, and at zero percent interest. First time that’s ever happened.

It’s a sure sign that investors are scared. They’d rather park their cash with the government and get no appreciation – just the principle back – than risk it in the stock market or even a bank account.

And it’s not just the four-week bonds that are pegging all-time low interest rates. On Monday, $27 billion worth of three-month Treasury bills were auctioned with an infinitesimally small 0.005% rate – the lowest on that particular term since the government first issued them in 1929.

In the secondary market today, where investors buy these bonds from the original auction winners, these three-month government bonds actually had a negative yield. Investors who want to park their money in these super-safe instruments were actually willing to give up some of their principle to get their hands on government paper.

What’s causing the huge demand for Treasuries? Tony Crecenzi, chief bond market strategist at Miller Tabak + Co., says that financial institutions are trying to clean-up their balance sheets for the end of the year.

“These institutions realize that their balance sheets will be scrutinized for months by risk-adverse investors and that having, for example, risky assets on their books open them up to speculation and such,” said Crecenzi in an email note.

Also of interest, Crecenzi says this demand for liquidity and safety has been a driver of the surge in the amount of U.S. currency in circulation. He says the amount of cash in circulation has increased at a whopping 25.4% pace since the end of September, to $872.5 billion, a far faster pace than the usual 4% rate of increase.

December 9, 2008 | Permalink | User Comments (39) | TrackBack (0)

Why Merrill CEO Wants $10 Million Bonus

December 08, 2008 12:59 PM

ABC News’ Daniel Arnall reports: With the financial sector in its steepest dive since the Great Depression, reports that Merrill Lynch CEO John Thain is asking for a $10 million bonus this year is raising the ire of many people.

But 53-year-old Thain, once the CEO of the New York Stock Exchange and COO/CFO/president of Goldman Sachs, is likely making a compelling case to the company’s compensation committee.

What could he possibly be saying to justify the eight-figure bonus in a year when the Merrill shareholders have lost 35 percent of their investment and have seen the firm report a loss of $5.1 billion in the latest quarter?

• I’ve been very good at cleaning up a mess that was here when I started.

Thain took the reins of the firm in November 2007 after the global financial crisis had already started to take hold. During Thain's tenure, Merrill Lynch has been dealing with the investment in bad loans fairly successfully. At the last quarterly report, the firm said it had jettisoned 98 percent of its Alt-A mortgage exposure and other risky investments by 15 percent.

“We continue to reduce exposures and de-leverage the balance sheet prior to the closing of the Bank of America deal,” Thain said in the company’s latest earnings release.

• I’ve raised money in one of the worst markets in history.

Despite the stock market terror that has hit since October 2007, Thain has persuaded investors to plow an additional $10 billion in cash into the company through a stock offering and got an additional $4.5 billion by selling the company’s stake in financial info giant Bloomberg. That extra money gave it the “runway” it needed to come to a resolution other than bankruptcy or collapse.

• I sold the company instead of letting it collapse like Lehman Bros or Bear Stearns.

We’ve certainly seen what has happened to other big investment banks. In March, Merrill competitor Bear Stearns was victim to a government-engineered fire sale to competitor JPMorgan. In September, Lehman Bros. was allowed to fail, leaving investors and bond holders with nothing.

Thain did not allow Merrill to share their fate, instead pulling together a $50 billion merger with Bank of America. It has been a success story at a time when most of the news from the financial service sector has been unbelievably bad.

“As the landscape for financial services firms continues to change and our transition teams make good progress, we believe even more that the transaction will create an unparalleled global company with pre-eminent scale, earnings power and breadth,” said Thain.

While the board of directors is likely going to turn Thain down -- I imagine there would be a pitchfork-and-torches crowd in front of their New York headquarters if it didn’t -- Thain likely won’t have anything to worry about in the long term. He has been offered the top job at Bank of America’s new global banking, securities and wealth management division. I’m sure the salary and other compensation is pretty rich.

December 8, 2008 | Permalink | User Comments (124) | TrackBack (0)