CIT Names Ex-Merrill Chief John Thain to Run Lender
John Thain, the ousted chief of Merrill Lynch & Co., was named to lead CIT Group Inc., the commercial lender that emerged from bankruptcy in December, after almost a four-month search for a replacement.
Thain, 54, becomes chairman and chief executive officer immediately, New York-based CIT said yesterday in a statement. The century-old lender had been led by Jeffrey Peek, another former Merrill Lynch executive, from July 2004 until Jan. 15, when Peek stepped down and board member Peter Tobin was named interim CEO.
The job restores Thain to the top of a public company more than a year after he was pushed out by Kenneth D. Lewis, then CEO of Bank of America Corp., which agreed to buy Merrill Lynch during the 2008 financial crisis. Thain inherits a company that was crippled by Peek’s foray into subprime lending before the bankruptcy. CIT still operates under constraints tied to a federal bailout in 2008 and is shut out from the commercial paper market, its traditional source of funding.
“If he can pull this off, he’s going to be the king,” Brian Charles, a debt and equity analyst with R.W. Pressprich & Co., said in an interview.
CIT rose 2.9 percent to $31.65 by 10:32 a.m. in German trading, after closing at $30.75 in New York Stock Exchange composite trading on Feb. 5.
Need to Do Well
CIT provides business loans to more than 3,000 companies and is the third-largest railcar-leasing and aircraft-financing firm in the U.S., according to its Web site. With 4,480 employees at the end of September, CIT is a fraction of the size of Merrill Lynch, which had a staff of more than 64,000 when Thain arrived.
“This is a company that’s over 100 years old and its core business is lending to small- and medium-sized companies,” Thain said yesterday in an interview. “If we’re going to get the U.S. economy to continue to grow, if we’re going to create jobs, then we need to have this kind of a company do well.”
Before joining Merrill Lynch in December 2007, Thain ran NYSE Euronext, the company that owns the New York Stock Exchange, and spent about 24 years at Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history.
At CIT, Thain’s pay is subject to compensation restrictions imposed on management of companies that have received funds from the Troubled Asset Relief Program, or TARP.
He will receive $500,000 in salary and $5.5 million in shares, of which $2.5 million is restricted for one year and $3 million is locked up for three years, CIT said in a regulatory filing today.
Pay at Merrill
Thain may also be eligible for a $1.5 million “incentive” payment in restricted shares, contingent on his performance, that will vest after two years and can’t be sold for three years, CIT said in the filing. CIT can claw back the $1.5 million discretionary award under certain conditions, including a determination that Thain has taken “excessive and unnecessary risk,” according to the filing.
Merrill Lynch agreed to pay Thain $44 million in bonus, salary and stock when he took over that firm, which he arranged to sell less than a year later to Bank of America. Lloyd Blankfein, chairman and CEO of Goldman Sachs, was awarded $9.6 million in restricted stock and salary for his performance in 2009, while Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., got about $17 million in restricted stock and options.
Thain said CIT could exit TARP within the next few months by extinguishing “contingent value rights” that the government received during the bankruptcy.
Salt Lake City
For CIT, Thain must find lower-cost sources of funding, lift restrictions on its banking unit and win over regulators wary after the bankruptcy filing wiped away a $2.3 billion Treasury Department stake. CIT, unable to win a second round of government assistance, was forced into bankruptcy after posting losses from subprime and student lending for 10 consecutive quarters totaling more than $6 billion.
The company has been trying to move its small-business lending, trade finance and U.S. vendor finance operations to CIT’s Salt Lake City-based banking unit so it can use deposits as a source of cheaper funding for loans.
Thain said in the interview that he wants to spend the first couple of months reviewing CIT’s businesses to figure out how they can be funded most effectively. Some units can fit into CIT’s Utah-based bank if Thain can get the Federal Deposit Insurance Corp. to lift a “cease and desist order” it has placed on that business, he said.
He said it’s too early to speculate about whether the other businesses, which have traditionally relied on funding from the capital markets, should be sold. Asked if the entire company might be sold, Thain replied that he wouldn’t rule it out. The current plan is to run CIT as an independent entity, he said.
“His experience at Goldman, his experience, particularly at the New York Stock Exchange, which was a restructuring of sorts, really helped us hold him in good stead in terms of what he has to accomplish at CIT,” Tobin said yesterday in an interview.
CIT’s bankruptcy reorganization cleared away $10.5 billion in debt and pushed back bond maturities for three years. The firm recruited seven new independent directors and named Tobin as interim CEO after Peek’s exit. Egon Zehnder International was hired to find a replacement. The company will rely on Thain to “continue CIT’s transition to a more streamlined commercial lender,” CIT said.
This month, Chief Operating Officer Alexander Mason became the fourth executive to announce a departure, saying he would step down Feb. 26. Earlier, CIT Chief Financial Officer Joseph Leone said he would retire in April, and Chief Risk Officer Nancy Foster stepped down Dec. 31.
Thain said naming new senior managers will be a priority. Nelson Chai, who was Thain’s CFO at Merrill Lynch and NYSE Euronext, will probably be a candidate for the CFO position at CIT Group, Thain said.
“John is a well-respected financial services executive and proven leader who is uniquely qualified to lead CIT at this critical stage,” CIT lead director John Ryan said in a statement yesterday. “CIT and its customers will benefit enormously from his breadth of experience, industry acumen and deep knowledge of the financial services sector.”
Thain’s departure from Merrill Lynch after Bank of America’s takeover was clouded by criticism about Merrill’s plan to pay $3.6 billion in bonuses even as the firm’s losses swelled to $27.6 billion. Thain has said Bank of America was aware of the bonuses and had been kept informed about the losses.
Focused on CIT
Last week, New York Attorney General Andrew Cuomo filed a civil fraud case against Bank of America, former CEO Lewis and the former Chief Financial Officer Joe Price. The case alleges that they deceived investors and taxpayers in 2008 by not disclosing losses at Merrill Lynch before shareholders voted on the firm’s pending takeover, and used those losses to extract more bailout funds from U.S. regulators.
Bank of America, based in Charlotte, North Carolina, has called the charges “totally without merit” and lawyers for Lewis and Price have denied wrongdoing.
The lawsuit “stands on its own and I’m glad that the truth has come out,” Thain said. “I’m focused on CIT and I’m focused on moving forward — that is history to me.”
One lesson of his experience at Merrill Lynch will stick with him. Thain’s departure coincided with revelations that he’d spent $1.2 million to redecorate his office at the money-losing company when he joined in 2007. He later said the renovation was a mistake and reimbursed the firm.
At CIT, “I think I’ll keep my office exactly the way it is,” he said.