Thain cuts an impressive figure. Every time I see his pixelated image in the Wall Street Journal, and read his bold and firm pronouncments, I say to myself, "He is just the man to take Merrill to a new level of consistent mediocrity".
Of course the thundering herd of brokers are probably pleased now that Merrill is refocused toward wealth management and not subject to the complex witchery of some bond trading desk back East (you know, where Jews and New Yorkers and evil people live).
It seems everyone is quite in love with Thain, the former head of the New York Stock Exchange who has stepped in as head of Merrill Lynch to right all the wrongs. If former head Stanley O'Neal produced some $22 billion of profits from 2002-2006, only to see it all get blown away in one quarter of 2007, as the N.Y. Times points out, Thain is not wasting any time in distancing Merrill from its previous perverted self.
Now I tend to view Stan's attempts to broaden Merrill's money making methods as quite practical, even noble. Aspiring to be like Goldman is not a bad thing. In fact I think all the wrong lessons are being learned by firms across the board, but especially at Merrill.
Blow ups happen. What do they call them now? Black Swan events, or unexpected rarities. For a Wall Street firm, unexpected events should be a given. You should surely expect that somewhere in the world some government may devalue something or some mortgage broker is greasing some home deal. That stuff happened, happens, and will continue to happen. Same disaster, different face. In the past it was hedge fund Long Term Capital Management getting caught by Russia devaluations. In the recent past it was mortgage backed security holders being caught with with assets backed by little more than NO DOCUMENTATION. During other periods it has been tulips or Japanese real estate.
In this particular difficult period firms across the board got caught flatfooted, and only Goldman's management was consistently monitoring their book. Notice that Goldman did not say, "Hot fudge, we better get out of this trading business and shift toward money management." They know what works and how to monitor risk.
If we are to fault former Merrill management, it is a rather normative fault in that they made the same errors in judgement that other firms made. The mistake was not, in fact, their trying to be like Goldman or taking on trading risk or dealing in CDO's and mortgage backed instruments. The error was in not monitoring the risk and being proactive.
Along comes Thain. Tall and confident looking. It's almost Valentines Day and a perfect moment for people to swoon and get moony-eyed. He sounds good. The name itself has aires of Britain and money. Thain might come in and decide that bonuses will be paid out 60% in stock, but that's okay because Thain is a fix it guy, and confident, and flies out to Arizona to let the asset manager types know that, "You are somebody." He inspires the type of confidence that let's you know that you will never be at the back of the pack again.
Of course, given the direction he is pointing Merrill, they might never be at the front of the pack either. Merrill will be comfortably stable and predictable. That is not a bad thing. We cannot all be at the top. Every child is not smart, every woman is not beautiful, every firm cannot be Goldman.
Who am I to critique Thain's rush to move Merrill to the same types of businesses and conservatism that every other collapse avoiding firm is rushing toward. Thus as the herd moves toward collective rentrenchment, that leaves greater opportunties for firms like Goldman.
Thain would be worth his press if he were to say, "We, like everyone, messed up in this one area of risk oversight. We are fixing that, and will continue to fire in all business areas". Now that would have been a pronouncement worthy of confidence that Thain puts out.
Alas the world (that being Merrill Land) is held by Thain in the palm of his derriere. There is Thain sitting atop the Merrill egg, keeping it warm and cozy. Will he know when to stand up, let it hatch and breath?
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