John Thain, former CEO of Merrill Lynch, is sponsoring a SPAC: Pine Island Acquisition Corporation. And the firm announced its intention to acquire a government vendor: “we intend to focus our search on defense, government service and aerospace businesses…”
John Thain’s tenure over Merrill Lynch was not uneventful. His Pine Island bio gently notes that he presided during the Great Financial Crisis. Merrill Lynch was a buyer of toxic securities like subprime mortgage-backed securities and associated derivative securities like Credit Default Swaps (CDS).
The consequence was losses in the tens of billions for Merrill Lynch, which ultimately sold itself to larger and better capitalized Bank of America. Despite this apparent failure on behalf of shareholders – Merrill shares fell from $50 to less than $15 under his brief tenure which began in late 2007 – Thain demanded a $10 million bonus in December 2008 from the Board of Directors and resigned shortly thereafter.
While Thain was demanding eight figure bonuses, the combined Bank of America-Merrill Lynch was surviving only due to massive injections from the Federal Government. It is a somewhat rhetorical question to ask if any bonuses paid to Thain came from TARP funds. The firm was saved from bankruptcy thanks to TARP funds, so bonuses were necessarily paid from TARP funds.
At the most cynical, one could believe that Thain looks back on this period and sees that dealing with the Federal government can mean big payouts. Casting this notion aside, buyers of the SPAC shares should be aware of his stewardship (destruction?) over Merrill Lynch.
Voters should ask why former bank CEOs look to mergers with government contractors as the key to outsized financial returns. Incoming President-elect Joe Biden’s cabinet nominees, among whom two are affiliated with Pine Island, have come under some scrutiny for association with John Thain’s SPAC. The Axios article somewhat understates the issue when it notes, “there’s a D.C. revolving door issue here”.
While there is a need for private firms to sell goods and services to the government, cautionary notes have been given since Eisenhower who warned of “potential for the disastrous rise of misplaced power” from the closeness of military contractors to government policymakers. Indeed, some of the more dire news of this past Christmas weekend has to do with President Trump’s pardon of unforgivable crimes committed by private U.S. government contractors in Iraq.
We all ought to keep a close watch as some of recent history’s bad financial actors return at a time of market ebullience to chase payouts from government-related companies, all while in cahoots with politically connected colleagues. Perhaps John Thain should self-govern his own CEO compensation this time around, given President-elect Biden’s opinion of Thain’s desired bonus during the Great Financial Crisis: “‘I mean, I’d like to throw these guys in the brig,’ Biden said in an interview with CNBC.”
John Thain has already had millions paid to him from government coffers – is he at it again with this SPAC?
San Francisco Securities Outlook 