How Merrill Went Into the Toilet

Crash of the Titans:
Greed, Hubris, the Fall of Merrill Lynch,
and the Near-Collapse of Bank of America
By Greg Farrell
Crown Business, 480pp, $27

Sitting in the backseat of his chauffeur-driven car in September 2007, then-Merrill Lynch Chief Executive Officer Stanley O'Neal grew restless. Waiting for him at Manhattan's Time Warner Center was Ken Lewis, the Bank of America (BA) CEO and perhaps the only person willing to purchase Merrill and its collateralized-debt-obligation-infested books. It wasn't Lewis—or the fate of Merrill's employees and shareholders—that had O'Neal in knots. As he approached midtown Manhattan, O'Neal couldn't hold it in anymore: After an hour in the car, the guy just had to hit the bathroom.

This is the first of the gossipy revelations in Greg Farrell's Crash of the Titans, the latest—and possibly the last—major entry in the seemingly inexhaustible financial-crisis canon. While Farrell ostensibly charts the cataclysmic demise of his subjects, the Houses of Merrill and BofA, he seems more concerned with where O'Neal golfed (the Country Club of Purchase, among others), what he drove (an Audi A8), and where his successor, John Thain, vacationed (Vail). This isn't a bad thing. As the financial crisis' answer to Game Change—John Heilemann and Mark Halperin's tattle-filled best-seller about the 2008 Presidential election—Farrell shows that these seemingly trivial matters became the obsessions of Wall Street executives as the subprime contagion spread. At the moment they should have been minding their balance sheets, Farrell claims many of the financial industry's masters of the universe were preoccupied with their bonuses, expense accounts, and office renovations. Some were just looking for the john.

For Farrell, O'Neal is useful in explaining the extraordinary rewards once heaped on executives. The CEO had a private elevator at Merrill's headquarters that he rode to his 32nd-floor office. If, for some reason, he had to take another elevator, employees were expected to vacate immediately. While O'Neal flew on the corporate jet each weekend to his vacation house in Martha's Vineyard, he wasn't shy about billing the company for his lengthier family vacations. Despite being one of the highest-paid executives on Wall Street, Farrell writes that O'Neal charged a large part of a 2005 South African family safari to Merrill by arranging meetings with Nelson Mandela and other dignitaries. For all his imperiousness, O'Neal was sent packing with $161 million.

Unfortunately, as Farrell writes, O'Neal's successor picked up the baton. Though he positioned himself as a regular guy who would rescue the firm, John Thain had an equally voracious appetite for excess. Thain hired Michael S. Smith, interior designer to stars such as Steven Spielberg, to redo his new office. Smith came up with a $1.2 million plan that included a $35,000 commode, a $68,000 19th century credenza, and a now-famous $87,000 rug. Although Merrill accepted $10 billion in Troubled Asset Relief Program funds in November 2008, Thain also pestered his board for a $40 million yearend bonus. He noted that Goldman Sachs (GS) was following the Street's tradition of showering its executives with cash at the end of the year. "But Goldman is different," John Finnegan, the compensation committee chairman explained. "They have earnings."

By that point, though, the culture of opulence had already spread to levels of tragicomic excess at Merrill. Strategy chief Peter Kraus installed a plasma-screen television in his office displaying a video by the European artist Su-Mei-Tsi depicting street cleaners sweeping sand in the desert. Kraus also adorned the room with another piece of art that looked suspiciously like a bookcase. When one of his colleagues leaned on it, Farrell writes, Kraus chided his guest for failing to treat it like a museum piece.

As a Scotch-drinking Mississippian, BofA's Lewis had reservations about the white-wine-swilling executives on Wall Street. Yet Lewis lusted for Merrill and the Street cred the firm provided. After Lewis bagged his prey, he "paraded Thain around as if he were a trophy." In Farrell's words, Thain was "an exotic creature captured on safari who would now be on display at the bank's headquarters." Of course, this was before Lewis actually looked closely at Merrill's books in early 2009. By then, his directors had had enough of his showmanship. They gave him the boot and a $125 million retirement package.

Farrell, a Financial Times reporter who covered Merrill, doesn't provide much sourcing. And given the rampant duplicity on Wall Street that he describes, sometimes it's important to know who's saying what—and about whom. Nevertheless, it appears from Farrell's intimate descriptions of the key players—and their bladders—that many cooperated. (Of course, some don't have much else to do these days.) While their successors might view Crash of the Titans as a road map to their own lofty severance packages, perhaps shareholders will read it as a warning. As will swanky interior decorators.

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