Jan. 22 (Bloomberg) -- John Thain, who engineered the sale of 95-year-old Merrill Lynch & Co. to Bank of America Corp. in September, was ousted after Merrill’s $15.4 billion loss forced the lender to seek more money from the U.S. government.

Thain, 53, “agreed his situation was not working out and that he should resign,” Bank of America spokesman Robert Stickler said in an e-mail today. His exit ends Thain’s tenure with the Charlotte, North Carolina-based bank less than a month after Merrill’s takeover was completed.

Thain negotiated the sale with Bank of America Chief Executive Officer Kenneth Lewis, 61, whose credibility was undercut when the brokerage reported a record fourth-quarter deficit. Lewis, who considered backing out of the deal when he learned of the extent of Merrill’s losses last month, went ahead at the insistence of U.S. regulators who provided a new $138 billion aid package.

“There was a certain surprise that the Merrill losses were as steep as they were,” said James Post, a professor of corporate governance and business ethics at Boston University School of Management. “On top of that, I think Lewis didn’t think Thain was doing as much as he could to control the expenses and minimize the losses.”

Shares of Bank of America, down 53 percent this year through yesterday, slid 14 percent to $5.71 as of 4:58 p.m. in New York Stock Exchange composite trading. Thain bought 84,600 shares of Bank of America at $5.71 each the day before his ouster, a filing showed.

The Office

Thain also drew criticism for redecorating his New York office last year, a project that a person familiar with the matter said ended up costing about $1.2 million. Thain paid decorator Michael Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza, CNBC reported.

“Spending company money on a lavish redo at a time when Merrill’s finances were rocky sends the wrong message,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington. “Given the dire straits that so many financial institutions are in, redecorating the corner office should be way down on their to-do lists.”

Now Thain, a former Goldman Sachs Group Inc. and New York Stock Exchange executive who was hired to run Merrill in December 2007, joins about 35,000 employees that Lewis plans to eliminate over the next few years from the combined firms. Merrill had 58,500 employees at the end of last year, and Bank of America had 243,075.

‘Over a Cliff’

Thain agreed to sell Merrill after less than a year as CEO, as credit markets wheezed and on the same weekend that Lehman Brothers Holdings Inc. filed for a record-breaking bankruptcy. Merrill’s financial condition had grown so dire that even Bank of America almost cut off Merrill’s trading credit lines, Thain said at the time.

Being ousted by Lewis “isn’t the outcome Thain wanted,” said Roy Smith, a former Goldman partner who teaches at New York University’s Stern School of Business. “He’d rather be known as someone who saved the organization than someone who salvaged a little bit of money before it went over a cliff.”

While Thain agreed to forgo a bonus for 2008, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, just before the deal closed, a person familiar with the probe said. Merrill normally paid bonuses in January or February.

Montag Stays

Last month, Cuomo said a performance bonus for Merrill’s CEO and other top executives would be an “oxymoron” during such an “abysmal year.” Thain received a salary of $750,000 last year, according to Merrill’s securities filings.

Bank of America General Counsel Brian Moynihan, 49, will replace Thain, the bank said today in a statement. He previously ran corporate and investment banking at Bank of America, and had also served as president of global wealth and investment management.

Trading chief Tom Montag, 52, who was hired by Thain from Goldman Sachs Group Inc., will stay with the company, according to Stickler, the Bank of America spokesman. Montag will continue to run global markets, and will now report to Lewis and be a member of the team that sets company strategy.

Merrill had hired Thain from the New York Stock Exchange in late 2007 with a $15 million signing bonus. Replacing E. Stanley O’Neal as Merrill’s CEO, Thain pledged to live up to his reputation as “Mr. Fixit,” the sobriquet he earned while rescuing the NYSE.

Instead, he held onto more than $40 billion of subprime- tainted bonds as the market cratered. He agreed to terms with investors such as Singapore sovereign wealth fund Temasek Holdings Pte. that later cost the firm $4.9 billion.

Thain also recruited a chief financial officer with no experience at a securities firm, while more than 40 senior executives, bankers and traders departed. In the end, he merged Merrill into a large bank -- a step O’Neal concluded was needed in mid-2007, when the stock was trading at more than six times higher.

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: January 22, 2009 18:29 EST