John Thain, the former Merrill Lynch & Co. CEO, has resigned from his position as president of global banking, securities and wealth management operations at Bank of America Corp. (BAC) after a meeting with BofA CEO Ken Lewis, according to a breaking news bulletin Thursday by the Wall Street Journal. Spokespeople from Merrill Lynch and BofA would not return calls seeking comment before this story was published mid-Thursday. BofA stocks were down almost 14 percent and were trading at about $5.70 moments after the announcement began to cross major media outlets. The news comes as the bank grapples with steep losses incurred after the completion of BofA’s merger with Merrill on Jan. 1. The bank also purchased troubled mortgage lender Countrywide Financial Corp. in July 2008, making it the largest mortgage lender and servicer in the country. The addition of Merrill effectively made BofA the nation’s largest stock brokerage and a large investment bank to boot. But under the surface, BofA’s balance sheets were hurting from the latest acquisition, and executives were reportedly in discussions with the Treasury Department as early as December regarding additional capital injections through the Troubled Asset Relief Program. BofA on Oct. 28 had received $15 billion through the capital purchase vehicle of TARP; Merrill’s $10 billion injection was slated at the time as deferred pending the merger. The $10 billion was later granted to BofA on behalf of the completed acquisition. The announcement Jan. 15 that the Treasury and Federal Deposit Insurance Corp. had agreed to assist the bank further meant BofA had an additional $20 billion through a new targeted investment vehicle of TARP and would enjoy a loss sharing program with the government to offset deep losses incurred through the Merrill acquisition. BofA now boasts one of the largest capital injections through TARP, totaling $45 billion — a figure matched only by the injections given to Citigroup Inc. (C), whose $45 billion also consists of capital purchase program and targeted investment program contributions. Friedman, Billings, Ramsey analyst Paul Miller made waves Tuesday by suggesting BofA needs more than $80 billion in new common equity capital, thanks to a ballooning balance sheet of assets tied to its acquisitions of Countrywide and Merrill. Miller suggested that BofA would also need to cut its dividend to preserve capital, and moved his target price to $5 per share. The forecast, coupled with a bleak outlook from BofA’s Lewis going into 2009, begs the question whether the bank can withstand continued losses and capital pressure much longer, or whether it will require more federal aid going forward. Write to Diana Golobay at firstname.lastname@example.org. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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