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New book by award-winning journalist Greg Farrell,
reveals never-before-told details about the decline and collapse of
Merrill Lynch and its sale to Bank of America
Author discovers internal whistleblower and epic mismanagement
CRASH OF THE TITANS
Greed, Hubris, the Fall of Merrill Lynch
and the Near-Collapse of Bank of America
By Greg Farrell
Merrill Lynch was long known as a firm that revolutionized the stock market by bringing Wall Street to Main Street, setting up offices in far-flung cities often ignored by the giants of finance. With its “thundering herd” of financial advisors, perhaps no other business so epitomized the American spirit. To many, its sudden decline and sale to Bank of America was a shock. Veteran award-winning journalist and correspondent for the Financial Times Greg Farrell, in his book CRASH OF THE TITANS: Greed, Hubris, the Fall of Merrill Lynch and the Near-Collapse of Bank of America, is the first to recount what really caused the demise of this storied firm and how the events of the merger with Bank of America unfolded. Other books and news articles may have skimmed the surface, but Greg Farrell will be the first to reveal the depth of the epic mismanagement at the firm. Ultimately, he uncovers how people responsible for billions of dollars of other people’s money gambled recklessly to enhance their power and paychecks and to save their own skins.
What does this story of greed, hubris, and incompetence tell us about the culture of Wall Street that continues to this day? What does it tell of about Bank of America, a bank where millions of Americans currently put their money? Through two years of investigative reporting that included over 300 hours of interviews with more than 120 sources, Farrell answers such questions and more, including how could the CEO of a firm losing more than $20 billion push hard to be paid a $25 million bonus? How could two Merrill Lynch executives be guaranteed bonuses of $30 million and $40 million for four months’ work, even while the firm was struggling to reduce its losses by firing thousands of employees?
The book is based on unparalleled sources at both Merrill Lynch and Bank of America and Farrell discovered that the fall of Merrill Lynch—generally blamed on the sudden, negative turn in the mortgage market—was primarily rooted in Stan O’Neal’s decision to put Osmand Semerci, a highly successful salesman, in charge of Merrill’s fixed income unit in the summer of 2006. Over the course of 9 months, as has been reported elsewhere, Sermerci loaded up Merrill’s balance sheet with more than $30 billion in toxic subprime-related assets. What has not been known is the degree to which O’Neal and top management were unaware of what was going on.
CRASH OF THE TITANS also uncovers an internal whistleblower–sharing how one executive in the sales and trading department, Laurence Tosi, was shocked at the magnitude of Merrill’s CDO position, and couldn’t understand how the fixed income department under Semerci could have loaded up on such risky securities in such a short period of time. Over a two-month period, he conducted his own investigation into what went on in Semerci’s department. He tore apart Semerci’s explanations and exposed the origins of the CDO problem to top management. A few weeks later, Semerci and his deputy Dale Lattanzio were fired, but both men were allowed to cash out the Merrill Lynch stock they had accumulated through 2006.
The book is a wealth of information on all the major players involved, including:
- Stanley O’Neal, whose inspiring rise from the segregated South to the corner office of Merrill Lynch–where he engineered a successful turnaround–was undone by his supreme confidence in his own judgment and his relentless pursuit of ever-greater profits for the firm.
- Osman Semerci, a former rug merchant and tour operator from Istanbul, who charmed Stan O’Neal with his smooth-talking style, convincing the Merrill Lynch CEO that he could handle one of the most complex jobs in finance. O’Neal was so smitten with the young Turk that he presented him to his board as a possible successor in the corner office. It was only after an internal probe exposed what had happened on Semerci’s watch that top management fired Semerci, and the internal expose was stamped with an “attorney-client privilege” designation to prevent it from falling into the hands of plaintiffs lawyers.
- John Thain, the cerebral, MIT-educated technocrat whose rescue of the New York Stock Exchange led one magazine to dub him ‘super thain.’ He was hired to save Merrill Lynch in late 2007, but his belief that the markets would rebound led him to underestimate the depth of Merrill’s problems.
- Bank of America CEO Ken Lewis, who, having spent his entire banking career in the shadow of his legendary predecessor Hugh McColl, ignores warnings about Merrill Lynch and rashly agrees to pay $50 billion for a firm that is falling apart. Lewis’ peculiar management style—which involved surrendering significant control over the bank to his top human resources executive—insulates him from the realities of the marketplace and allows him to march the once mighty Bank of America to the edge of a financial and regulatory precipice.
Crash of the Titans also reveals, to a much greater degree than has ever been disclosed, the minute-by-minute drama of the negotiations between Merrill Lynch and Bank of America over a fateful weekend in September. Highlights from that weekend:
- On Saturday evening, Thain and his new Goldman Sachs hires failed to convince the top executives at Morgan Stanley that they should merge with Merrill, as has been reported. But Thain’s group of ex-Goldman Sachs people tried again on Sunday. Tom Montag called up Walid Chammah, a top deputy to Morgan Stanley CEO John Mack, around noon—even as Merrill Lynch was getting close to receiving a firm offer from Bank of America. Montag told Chammah that if any deal was going to happen, “your John would have to call my John.” Chammah rebuffed the overture.
- On Sunday afternoon, as Bank of America’s own people were trying to do due diligence on Merrill, the top executives from the Charlotte bank removed themselves from the due diligence process and were ensconced in the bank’s corporate apartment at the Time Warner center watching an NFL football game, cheering loudly for the Charlotte Panthers.
- After accepting the offer, Thain called Ken Lewis, CEO of Bank of America. Since he had no change in control clause to his contract, Thain would get no big financial reward for selling the firm. He asked Lewis if a clause could be negotiated in the deal whereby he and his top executives would see some of their Merrill Lynch options—which were deep underwater—converted into Bank of America shares. The negotiations over Thain’s options became a sticking point during the negotiations that evening.
Other newsbreaks include the following:
- In October 2007, as O’Neal desperately searched for a solution to Merrill Lynch’s problems, he asked one of his directors, Alberto Cribiore, to place a call to Warren Buffett, the billionaire investor from Omaha. Buffett agreed to talk to O’Neal but the overture went nowhere.
- New York Attorney General Andrew Cuomo brought charges against BofA’s Ken Lewis and CFO Joe Price, claiming that they engineered the firing of the bank’s general counsel, Tim Mayopoulos, because of the lawyer’s concerns over the bank’s disclosures related to the Merrill acquisition. Crash of the Titans reveals that Mayopoulos was fired in part because he and the lawyers who worked for him complained incessantly about how poorly they were paid.
- Throughout October, as Merrill racked up the worst monthly losses in its history, top executives at the firm were sure that Bank of America’s top management would call and demand to renegotiate the terms of the deal. The Merrill executives, led by treasurer Eric Heaton, prepared a series of arguments for top management to use in response to BofA’s inevitable request. But BofA never called to renegotiate.
Crash of the Titans is an intimate fly-on-the wall tale of the decline and fall of an American icon and one of the premier brands in financial services. Its wealth of never-before-revealed information and focus on two iconic banks make it the book that puts together all the pieces of the Wall Street disaster.
GREG FARRELL is a correspondent for the Financial Times. In January 2009, he broke the news that Merrill Lynch had paid out its 2008 bonuses a month ahead of schedule, in December, even though Merrill was in the process of losing $28 billion for the year and Bank of America needed an extra $20 billion in taxpayer funds to complete its acquisition of the firm. That story sparked an investigation by New York attorney general Andrew Cuomo. Greg is a past winner of the American Business Press’s Jesse Neal Award for investigative reporting and a recipient of the Knight-Bagehot Fellowship for business journalism. He earned a BA from Harvard University and an MBA from the Graduate School of Business at Columbia University.
GREG FARRELL IS CURRENTLY AVAILABLE FOR INTERVIEWS
See www.crashofthetitansbook.com for more information
CRASH OF THE TITANS: Greed, Hubris, the Fall of Merrill Lynch
and the Near-Collapse of Bank of America
By Greg Farrell
Crown Business * On sale 11/2/10 * $27.00 * ISBN 978-0-307-71786-3