Feb

1

I should know something about the relation between Merrill and BAC because I have much experience in sports and mergers, but I just am amazed about how much I don't know. Some isolated facts stand out. Apparently Lewis caught the previous BAC's eye because of his dashing characteristics on the softball field of Central Park where in a game, his hard slides helped them beat Citi even though Citi was much bigger. Okay, does playing an aggressive game really qualify one to move up the ladder these days? Apparently it does because the Lehman chief was known for saying to Thain, "He'd cut his heart out if he learned that rumors about L's being in trouble were being spread. And he also liked to beat out opposing fathers or coaches at Little League games if they tried to bully fathers on his side and he was well known for the look in his eyes that scared you in the executive suite and the squash court. It's right out of How to Succeed in Business and I wonder if it's still grounds for demotion if you act sassy with the boss's girlfriend, and whether you still have to sing the college song or take up knitting as a hobby if the boss is into it to get ahead.  

Now on the merger, this is known. The agreement on the deal was announced September 14th at 29 a share in stock for 42 billion. BAC at 34 on sep 22. Deal approved by Merrill shareholders on Dec 5 when stock at 15 and closed on Dec 31 when BAC closed at 14. By Jan 19, BAC was 5. So Merrill shareholders only received 15 billion or 7 billion at most. Merrill had a book value of 37 billion at year end 2007 and lost 27 billion "after" in 2008 bringing book down to 10. They started year with 41 billion in cash and 1 trillion in total assets. Merrrill lost 15 billion in Dec. Thain said he told BAC about the losses when he learned about them. He was acting as CEO and Chief of Trading for the combined entities through the period. He said that the Merrill bonuses were paid in the normal course with BAC approval. The Fed agreed to invest 20 billion in BAC and guarantee 118 billion in assets when the loss was announced. the questions all relate to the timing. How does it happen that a CEO does not know about the losses in his operation, during a period, especially when a merger is being voted on until a few days after the end of the period. Same with respect to bonuses being paid. From what I know about mergers, it's not surprising that both companies wished to merge. Companies like to sell when the lighting is about to strike and pickets are surrounding their factories. Buyers are much more reluctant to pay cash than stock when their business is going well.

Presumably this was a Brer Rabbit and Brer Bear case where both buyer and seller were so reluctant to be thrown into the briar patch that they both needed exhortation from a third party to go through with it. Presumably this had something to do with the additional 20 billion invested on 1/16 by the third party and the 100 billion guarantees. But my questions remain. How could a head man now know about the losses in a fourth quarter until Jan 16 and how could he not have disclosed these earlier to his acquiring company? How could they all have independently bought stocks at 6 a share on Jan 22, including T and l just a few days after the loss was announced, and one day before T was asked to leave? I read that the third party had to come up with the 20 billion and 100 billion because otherwise BAC would have backed out of the deal but how could they do so after the deal had been approved by their stockholders? Were their comparable bad things that each party did not disclose to the others when the stock to stock deal was agreed to? What's the back story here about when T was asked to leave and did it have anything to do with the 1.2 office renovation or more about the failure to disclose the extent of the loss before the stockholders vote, and the executive bonuses were paid out? How does the request by Thain for a bonus for himself of 5 million which was apparently rejected by the directors fit into the puzzle and where were the directors vis a vis disclosure of the losses to all parties in the time line of the agreement the vote and the closing?

I am a babe in arms about this and wish to be clarified so I won't be so naive again after having spent so much time in aggressive sports competition and putting together mergers.

Douglas Dimick writes:

For team sports, I pitched and played firstbase and leftfield in little league for two years, then baseball and basketball in junior high. For high school, though, I spent my winters competing individually at a private ski racing academy in NH.

I worked for four years in the world’s largest law firm (The JAGC) as a legal specialist in the US Army. Then after law school, though, I worked as a trustee for my parents.

While at Georgetown studying literature, I did a consulting job for a beltway firm that provided anti-terrorist training to the State Department. The owner told me: “Son, if you have to compete, you are in the wrong business.”

This man appeared to me to assume responsibility as SOP. He took ownership, initiative to lead on a deal, the business, an issue at hand. If something went wrong, he was the first to step up.

I worked with another man, who had been a key person during the go-go years at Reliance, who was recently barred from the markets as a settlement with the SEC. For him, it appeared to me that he operated from a centricity of ego, from which he would apportion responsibility and blame upon others. I found his style of leadership to be more about avoiding responsibility than accepting it.

Then there is evolution. I understand that V has a collection of seashells – symbolizing spiraling of life, markets, human endeavors, often so traded and reduced to currency?

During R&D of Quantitative Relativity, I studied spiraling (a la Fibonacci) concerning market indicators and function integration. Is the spiral a result of competition, the output of (non)correlated forces struggling for gain (and loss)? Are circling “patterns” (not as an output or state but as a geometric representation) exchange-like flows of the resulting order(s) from a given chaotic condition or event?

Relative to disclosure of losses and bonus issues as so posed in the article, perhaps these matters are merely a continuation of the same dynamics (or energy patterns) spiraling from years of exchanges (or transactions) that have lead markets to their levels of today?

I have found that, when humans compete, rules-based systems are so observed only to the degree that there is (natural or artificial) enforcement. When a runner is at first base and lurching out with thoughts of “stealing” second, the only regulation is governed from the pitcher’s corner eye.

Could we expect anything more (or less) of BAC, Merrill, and their angling minions?

I read the locker-room banter-sites among deal mavens. The mentality appears symptomatic of breast-feeding on how to blindside the umpire – that’s why they require “teams” of lawyers and accountants.

Who thinks that such professional sportsmen follow the rules, regardless of when they play it hard or play it soft? Fans don’t. Why should investors — at least after now?

Here in China, where there are no rules, just party will, striking similarities may be found with the recounted gameplay tactics like “hide the losses from shareholders one day before the vote.” We then need not wait to read the newspapers – government owned or otherwise – to know how these innings end… Badly for all concerned: teams, owners, fans, and the game.

What I learned long after my dairy cow showing during Maine’s fair season was that “winning” is not just about winning. Granted, theoretically, for every trade, there is a winner and a loser.

But we know that is not necessarily true. It is a matter of perspective, as we spiral about our individual and collective ways, which we then – testing variants of humility as ego-centric creatures – externalize, thereby attempting to quantify as a cause or an effect of market timing.

With the Chinese New Year half way through its two-week celebration, I hope that we all might stop and reflect how a 4-H’er may approach the article… Consider, then…

The four “H”s target Life Skills:

•Head Planning & Organizing Problem Solving & Decision Making

•Heart Communication & Cooperation Showing Concern for Others

•Hands Community Service & Volunteering with Others

•Healthy Lifestyles Stress Management & Disease Prevention Character Education


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3 Comments so far

  1. douglas roberts dimick on February 1, 2009 10:04 am

    A Survey: The Spiraling of Head, Heart, Hands, and Health

    Is there anyone else who contributes to this site that participated (or is involved now) in 4-H, either as a youth member or as an adult supporter? Please comment…

    See http://www.umext.maine.edu/4h/default.htm.

    I am curious how others from farm and rural backgrounds approach issues and concerns attendant with market-related events these past months, such as posed in this article:

    “Okay, does playing an aggressive game really qualify one to move up the ladder these days?”

    For team sports, I pitched and played firstbase and leftfield in little league for two years, then baseball and basketball in junior high. For high school, though, I spent my winters competing individually at a private ski racing academy in NH.

    I worked for four years in the world’s largest law firm (The JAGC) as a legal specialist in the US Army. Then after law school, though, I worked as a trustee for my parents.

    While at Georgetown studying literature, I did a consulting job for a beltway firm that provided anti-terrorist training to the State Department. The owner told me: “Son, if you have to compete, you are in the wrong business.”

    This man appeared to me to assume responsibility as SOP. He took ownership, initiative to lead on a deal, the business, an issue at hand. If something went wrong, he was the first to step up.

    I worked with another man, who had been a key person during the go-go years at Reliance, who was recently barred from the markets as a settlement with the SEC. For him, it appeared to me that he operated from a centricity of ego, from which he would apportion responsibility and blame upon others. I found his style of leadership to be more about avoiding responsibility than accepting it.

    Then there is evolution. I understand that V has a collection of seashells – symbolizing spiraling of life, markets, human endeavors, often so traded and reduced to currency?

    During R&D of Quantitative Relativity, I studied spiraling (a la Fibonacci) concerning market indicators and function integration. Is the spiral a result of competition, the output of (non)correlated forces struggling for gain (and loss)? Are circling “patterns” (not as an output or state but as a geometric representation) exchange-like flows of the resulting order(s) from a given chaotic condition or event?

    Relative to disclosure of losses and bonus issues as so posed in the article, perhaps these matters are merely a continuation of the same dynamics (or energy patterns) spiraling from years of exchanges (or transactions) that have lead markets to their levels of today?

    I have found that, when humans compete, rules-based systems are so observed only to the degree that there is (natural or artificial) enforcement. When a runner is at first base and lurching out with thoughts of “stealing” second, the only regulation is governed from the pitcher’s corner eye.

    Could we expect anything more (or less) of BAC, Merrill, and their angling minions?

    I read the locker-room banter-sites among deal mavens. The mentality appears symptomatic of breast-feeding on how to blindside the umpire – that’s why they require “teams” of lawyers and accountants.

    Who thinks that such professional sportsmen follow the rules, regardless of when they play it hard or play it soft? Fans don’t. Why should investors — at least after now?

    Here in China, where there are no rules, just party will, striking similarities may be found with the recounted gameplay tactics like “hide the losses from shareholders one day before the vote.” We then need not wait to read the newspapers – government owned or otherwise – to know how these innings end… Badly for all concerned: teams, owners, fans, and the game.

    What I learned long after my dairy cow showing during Maine’s fair season was that “winning” is not just about winning. Granted, theoretically, for every trade, there is a winner and a loser.

    But we know that is not necessarily true. It is a matter of perspective, as we spiral about our individual and collective ways, which we then – testing variants of humility as ego-centric creatures – externalize, thereby attempting to quantify as a cause or an effect of market timing.

    With the Chinese New Year half way through its two-week celebration, I hope that we all might stop and reflect how a 4-H’er may approach the article… Consider, then…

    The four “H”s target Life Skills:

    •Head
    Planning & Organizing
    Problem Solving & Decision Making

    •Heart
    Communication & Cooperation
    Showing Concern for Others

    •Hands
    Community Service & Volunteering with Others

    •Healthy Lifestyles
    Stress Management & Disease Prevention
    Character Education

  2. Steve Leslie on February 1, 2009 10:59 am

    It is impossible to qualify what one man or woman finds appealing in another. I believe so much of attraction is based on what we share in common with the other party. Dale Carnegie in his very great book How to Win Friends and Influence People writes eloquently on this. One illustration of this is how you would dress for an interview with EDS in the old days. You better wear a dark suit, white cotton shirt and red silk tie. Black belt and black wing tip or similar shoe. Short cut hair and clean shaven. Ross Perot a graduate of the old IBM culture put great emphasis on this. Contrast this with an interview with a Madison avenue advertising firm and the style changes dramatically. If one were in silicon valley, almost anything goes there.

    Having worked at several wire house retail brokerage firms including the old Merrill and the old Dean Witter a few memories persist.

    Merrill always seemed to me to be run like the military. They put a great deal of focus on detail, an esprit de corp and especially aggressiveness. They always felt that they were the alpha male and everybody else was second rate. Therefore they maintained an air of arrogance. One sees this in sports. Also, I recall the branch manager of the #1 retail office was a former Marine who headed up the Washington D.C. office. Wonder what it was like to work there.

    My Dean Witter manager put great attention on those who had a sports background. Not surprising, he was an avid sports fanatic regularly playing in fantasy football contests and sports wagering. Phil Purcell came to be head of Dean Witter through his interaction with Sears during his days at McKinsey and Co. in Chicago. He was a graduate of Notre Dame and wunderkind of his day and was chosen by the big man of Sears to start up the Discover card.

    Tom James of Raymond James is a Harvard grad and thus he prefers hiring Ivy League and esp. Harvard grads. for his money management and research posts.

    If one wants to work in Law on Park Avenue, it is my understanding that having a legacy is a great place to start. Thus one would be in a great position to have graduated from NYU, Columbia, Yale, Harvard and other esteemed east coast law schools.

    One final note. Speaking of mergers, sometimes we have to work with those we don't care to. This is where a mediator comes into play. In Charlie Wilson's war we see this played out beautifully. Charlie Wilson brokered a deal so that the freedom fighters in Afghanistan received the equipment they needed with Israeli weaponry. One condition that the P.M. was adament about was no Star of David was to appear on any of the shipping containers.

    Yes we live in a curious world.

  3. Gary Rogan on February 2, 2009 9:26 pm

    This is real financial magic. There are so many distraction that look like tricks it’s not clear what the real trick is. Lehman is gone, and so many are sort of gone. All who are saved are saved for counterparty risk management. Whose risk? And whose counterparty?

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