Herbert Allison, Ex-Merrill President Who Ran TARP, Dies at 69
Herbert Allison Jr., the onetime president of Merrill Lynch & Co. who oversaw the U.S. government’s bank-bailout program following the financial crisis that led to his former company becoming a unit of Bank of America Corp. (BAC), has died. He was 69.
He died on July 14 at his home in Westport, Connecticut, of a possible heart attack, his son, Andrew, said yesterday in an interview.
Allison brought an insider’s knowledge to the U.S. Treasury Department when in June 2009 he became assistant secretary for financial stability under Timothy Geithner, overseeing the Obama administration’s changes to the Troubled Asset Relief Program. He said he believed the largest U.S. banks had become too big, and were serving too many different masters, even before the financial meltdown of 2008 froze credit and crashed markets.
“Because of Herb’s extensive experience and sound leadership, TARP became one of the most successful financial rescue programs ever created, and our nation avoided a second Great Depression,” Treasury Secretary Jacob Lew said yesterday in a statement.
Allison’s 28-year tenure at Merrill Lynch, starting fresh out of business school at Stanford University, seemed destined to end with him as chief executive officer. He settled for the company presidency when, in January 1995, then-CEO Daniel Tully named David Komansky as his successor. Four years later, in 1999, he resigned after being informed he would not become CEO.
From 2002 to 2008, he was chairman and CEO of New York-based TIAA-CREF, a retirement-plan investment manager for teachers and others in academic, research, medical and cultural fields.
In 2008 he accepted then-Treasury Secretary Henry Paulson’s invitation to become CEO of Fannie Mae, the government-sponsored mortgage-finance provider, which had been placed under government conservatorship due to losses from the collapse of the subprime mortgage market.
President Barack Obama nominated Allison to run the Treasury Department office overseeing the $700 billion rescue of the U.S. banking system. Confirmed by the Senate in June 2009, he succeeded Neel Kashkari, who had been appointed by George W. Bush.
Allison stepped down on Sept. 30, 2010, as the Treasury Department was shutting down the spending phase of the TARP program. Though highly unpopular politically, the TARP program ended on a positive note, with the Obama administration reporting the $700 billion rescue plan would actually cost taxpayers about $50 billion on a net basis.
“When all is said and done, this program will be viewed as one of the most effective and least costly forms of assistance” in the financial crisis, Allison said as he was leaving his post.
In “The Megabanks Mess,” an electronic book released in 2011, Allison warned that his former industry was already rewriting history to downplay the crisis it had faced.
“The truth is quite different,” he wrote. “All of America’s largest banks faced catastrophic failure in the fall of 2008. Even though some of those banks had controlled their risk exposures and liquidity better than others did, even they were saved only by massive, unprecedented outpourings of government assistance.”
Even before the financial crisis of 2008, Allison had concluded that the largest U.S. banks -- JPMorgan Chase & Co. (JPM), Bank of America, Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley -- had become too big and needed to be broken up, according to an interview he gave in 2011 to American Banker.
“I think there’s plenty of evidence that their business model -- the diversified financial services company -- has become obsolete,” he said, according to American Banker.
Herbert Monroe Allison Jr. was born on Aug. 2, 1943, in Pittsburgh. His father, Herbert Sr., retired in 1952 as an agent for the Federal Bureau of Investigation. His mother was the former Mary Boardman.
At Yale University, Allison suffered debilitating anxiety attacks before graduating in 1965 with a bachelor’s degree in philosophy.
“I’d withdraw to my room, and sometimes they would last for up to 10 days,” he said last year, according to the Yale Daily News. “Back then it was hard to diagnose -- I was told to just get over it. I was lucky and I did get over it, but many others don’t.”
He made the comments as his family foundation announced a $3 million donation to fund research through the university’s psychiatry department and the Yale Child Study Center. In an interview yesterday, Child Study Center Director Fred R. Volkmar called Allison “a very determined guy who didn’t give up.”
He entered the U.S. Navy as a commissioned officer in 1965 and served a tour in Vietnam. He left the Navy in 1969 as a lieutenant.
Allison joined Merrill Lynch after earning his MBA from Stanford in 1971 and served as treasurer, head of human resources, chief financial officer and head of investment banking. Among his early assignments was a venture in Iran, where he met his wife, the former Simin Nazemi, whom he married in 1974.
He was known as a highly responsible fiscal steward. “One thing I’d clearly emphasize was his integrity and his honesty,” said Winthrop Smith Jr., a former Merrill Lynch executive who is writing a history of the firm.
Following the market crash of 1987, Allison retooled the company’s bonus structure by introducing “Herbies,” or options based on team, rather than individual, performance.
“He took all kinds of grief about the Herbies,” Komansky recalled yesterday in an interview. In the end, “the thing worked, and everybody made a lot more money.”
Allison’s first brush with financial Armageddon -- and the potentially dangerous interconnectivity of banks -- was in 1998, when the collapse of Long-Term Capital Management LP, the hedge fund founded by John Meriwether, was roiling global markets.
“We were looking at doomsday,” Allison recalled, according to “What Goes Up,” Eric J. Weiner’s 2005 book on Wall Street history. “I mean this was doom, potentially worse than 1929.”
Allison took a leadership role in getting 14 banks and financial firms, including Merrill Lynch, to pump $3.65 billion into the fund to prevent a meltdown in the broader financial markets.
“I think that was Herb’s finest hour,” Komansky recalled, according to Weiner’s book. “My role was to keep everybody on the reservation. Herb’s role was to get the agreement done.”
In October 2011, the administration named Allison to head an independent review of government loans to energy companies. The move was in response to a congressional investigation into Solyndra LLC, the California solar-energy equipment maker that announced it was filing for bankruptcy in August 2011 after having received a $535 million Energy Department loan guarantee.
Survivors include his wife; sons John, a New York-based fiction writer, and Andrew, founder of Main Street Hub, an Austin, Texas-based social-media management company; and a brother, George Allison.
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