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How the Mighty are Fallen: Thain to Head CIT

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Boy, is this a down-market move for former Merrill CEO John Thain, both in terms of size of balance sheet and credit focus of the organization. CIT, which focuses on small and medium-sized business lending, had a roughly $70 billion balance sheet as of end of September, versus nearly $670 billion for Merrill as of year end 2008.

That $35,000 commode was more costly than Thain or his decorator could ever have imagined….

From the Wall Street Journal:

CIT is trying to mount a comeback of its own, having emerged from bankruptcy protection in December after eliminating more than $10 billion of debt.

It is one of several financial firms that have struggled to find a CEO amid the credit crisis, curbs on executive pay and the specter of government scrutiny. Now, more 16 months after the collapse of Lehman Brothers Holdings Inc., other executives prominent during the crisis are starting to surface. Thomas Russo, former general counsel at Lehman, recently became general counsel at American International Group Inc.

CIT recently approached Mr. Thain, whom Bank of America ousted shortly after its purchase of Merrill closed in January 2009. Since then, few public companies had been willing to take a risk on the executive, according to people familiar with the matter. Some CIT directors and stakeholders also raised concerns.

By all accounts, Thain was a capable executive before his career went off the rails at Merrill, and CIT is a more important organization than its size might suggest (it is a bulwark of lending to smaller enterprises). So let’s hope Thain can turn his career and the company around.

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15 comments

  1. kwark

    So, does he get a $50 million signing bonus for going with the little guy? I mean, CLEARLY he deserves it.

  2. sam hampster

    The ones that are capable right before the become incapable are the one that you have to look out for.

  3. dlr

    The thing that I (still) don’t understand is why Citibank was deemed “Too Big Too Fail”. What terrible thing would have happened if Citibank had been taken over by the FDIC, it’s bondholders forced to take a (massive) haircut, and the new Citibank set up the next day as a functioning bank with a completely pristine balance sheet? Or broken up in 100 pieces and sold off to 100 small responsibly managed community banks?

    Why was it instead ‘bailed out’ at taxpayer expense? The only remotely plausible explanation I have heard so far has been massive corruption on the part of Bush and Obama administrations. Presumably because the bondholders or shareholders of Citibank were “Too Policital Connected Too Fail”. Was there any other actual reasons why it should have been saved?

    1. Yves Smith Post author

      Short answer: $500 billion of unguarnteed foreign deposits (out of a $1.9 trillion balance sheet). Iceland has been muscled by the UK to make whole (or at least partially whole, I must confess to not following the details) UK depositors in Icelandic banks.

      Now imagine what a $500 billion overseas bank run would look like. Either that or have the US backstop those depositors (a political non-starter, since IndyMac’s uninsured depositors took big losses).

  4. attempter

    By all accounts, Thain was a capable executive before his career went off the rails at Merrill

    A capable executive until he became CEO? This sounds like a job for the Peter Principle.

    And if so, still making him CEO but just at a smaller company may not help.

    “Went off the rails…” Yes, a poor, passive victim. I often consider failed gangsters to be innocent victims who didn’t at all aggressively run their own careers off the rails.

    Now that I got that out of the way, the real structural question is, why are we still zombifying the likes of CIT, still letting them lay chains across the river, this time because they’re allegedly necessary to convey government money to small business?

    If government wants to help small business (and as the other post demonstrates, it should), then it should do so, and not simply use the conveyance as the pretext to really let finance gangsters impose more taxes and extract more tolls.

    It’s the same with every other aspect of the bailout, and with student loans and so many other things. Why doesn’t the government directly handle it can purge the parasites? Did Keynes advocate all these medieval toll booths? My remembrance is rusty, but I think not. He wanted to euthanize the rentier.

    Needless to say, the government couldn’t possibly be less “efficient” in doing this than the Keystone Krooks of the Wall Street rackets, who are clearly utterly incompetent at anything but stealing.

    1. Yves Smith Post author

      You are forgetting his tenure at the NYSE. What he did there was politically difficult.

      I’m not defending Thain per se, but you forget he inherited an utter mess. His big mistake was not the bathroom, but not accepting that the markets were not coming back and therefore not liquidating Merrill bad assets faster. He was considered a hero for getting the price he got for Merrill in September, remember? And who canned him? Ken Lewis, who now appears to have been scapegoating him for the Merrill losses, which Thain’s crew DID report to BofA, but Lewis & Co decided not to report to the public. So there was quite a bit of revisionist history re his track record that you seem to be forgetting.

      I’d take Thain over Pandit any day, and I am using Pandit to illustrate that who made it and who didn’t does not entirely reflect merit.

      And CIT will be a good test. It isn’t in good shape, and the economy sucks too. If Thain can fix it up, he will prove his previous reputation was not old Goldman halo effect.

  5. koshem bos

    Thain failed at Merrill, his behavior was arrogant (th commode), he couldn’t care less. Why on earth would anyone hire him for a job of any weight. Is the US lacking financial smart leaders? We are never interested in how well you did in your first job; we are interested only in your last job. Thain clearly fucked up at Merrill. As I used to say to people I hired: Your mother may be interested in your brightness, all I want to know is what you can you do for me.

    There is no reason why Thain would get a salary higher then 6 figures starting with 1.

  6. craazyman

    I suspect that “Thain to Head” could serve equally well as title of your post.

    No doubt he’ll be using the men’s room at his new employer.

    Booowa ahaha ha aha hahahahah ahahahahahaha hahaha!

  7. Thomas Barton, JD

    Yves, I am surprised by your defense of Thain.. Even on CNBC it is said more than once that he may be there to “sell off ” the company. What else could he do ? Where in the heck is he going to raise the capital to turn the company around ? Isn’t this organization sitting on junk that nobody wants ? Isn’t the continued existence of this company an even greater impediment to getting credit flowing again to small business ? Would the level of analysis that you apply to Maiden Lane III demonstrate any thing other than the futility of letting this monstrosity sit astride the flow of capital out to the small business world ?

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