Gartman: The Reign of Thain Has Been Anything But Plain

Dennis Gartman pulls even more John Thain Merrill quotes — and makes it apparent that Mr. Thain is a slickster too clever by half:


"We do not know John Thain, although we met him once, by accident, on the floor of the NYSE…Handsome fellow, Mr. Thain. Nice crisp suit; starched white shirt; elegant tie; good smile. Good Harvard man as we are told. The problem is, Mr. Thane seems to have a bit of difficulty when it comes to informing investors about the capital situation at his firm, Merrill Lynch, and having seen a compilation of the comments he’s made regarding Merrill’s "ample" or "sufficient, "or excess" capital we are left to conclude that Mr. Mozilo has nothing on Mr. Thain when it comes to making  misleading statements to the public. Read then the following comments by Mr. Thane to the media over the course of the past eight months… and know that we got them from Reuters, and we owe Reuter’s a debt of gratitude for them:

December 24, 2007
One of my first priorities at Merrill Lynch was to strengthen the firm’s balance sheet, and today we have made great progress towards that by bolstering our capital position through these investments and our announced sale of Merrill Lynch Capital.

Mr. Thain made this statement when Merrill was announcing an effort to raise $6.2 billion in new capital. One might have felt reasonably assured that that $6.2 billion would be Merrill’s last necessary trip to the capital trough. One would have been wrong, however..

January 15, 2008
These transactions make certain that Merrill is well-capitalised.

Mr. Thain made this statement after Merrill had finished selling $6.6 billion of preferred shares to a group of primarily Japanese and Kuwaiti investors. One might have felt reasonably assured that this $6.6 billion would be Merrill’s last necessary trip to the capital trough. One would have been wrong, however.

January 18, 2008
We are very confident that we have the capital base now that we need to go forward in 2008.

Mr. Thane made this comment to The New York Times that day. One might have felt reasonably assured that Merrill’ capital was unimpaired and that further trips to the capital trough would not be necessary. One would have been wrong, however.

March 16, 2008
We have more capital than we need, so we can say to the market that we don’t need more injections. We can confirm that we have tackled the problem



Chart via Jake from EconomPic Data


This was Mr. Thain speaking to El Pais, a leading newspaper in Spain, and one might have felt reasonably assured that Merrill’s capital was sufficient to meet all current and future needs given the clarity of Mr. Thain’s comments. One would have been wrong, however.

March 18, 2008
Today I can say that we will not need additional funds. These problems are behind us. We will not return to the market.

Mr. Thain’s comment this time was in an interview with France’s Le Figaro newspaper, so we can at least say that Mr. Thain has embraced globalisation with some real sense of enthusiasm, and further one might have felt reasonably assured that Merrill’s capital was sufficient to meet all demands put upon it. One would have been wrong however.

April 4th, 2008.
In 2007, we lost $8.6 billion after tax, but we raised $12.8 billion in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don’t need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I’m sure we have enough capital.

This "capital" idea was put forth by Mr. Thain in an interview with Japan’s Nihon Keizai Shimbun, and certainly by being able to raise $12.8 billion in new capital, of which $4.2 was new "net" capital, one might have felt reasonably assured that Merrill’s capital picture was clear and certain… finally.  One would have been wrong, however.

Four days later, on the 8th of April, which the world’s attention should have been upon the Master’s tournament, Mr. Thain said.

We deliberately raised more capital than we lost last year … we believe that will allow us to not have to go back to the equity market in the foreseeable future.

Mr. Thain made that comment when speaking to reporters in Tokyo, and by now… certainly by now!… one would have felt reasonably certain that Merrill’s capital picture was bright and clear. One would have been wrong,


June 17, 2008
Today on a pro forma basis we have about $44 billion of equity capital, which actually isn’t very much below the all-time high that Merrill ever had. And our philosophy about this is that we are well-capitalized. We’re comfortable with our capital position. We, like everyone else, are deleveraging our balance sheet.

This was Mr. Thain on a conference call hosted by Deutsche Bank explaining some of Merrill’s most recent capital market operations. With $44 billion of "equity capital," and assured by Mr. Thain of that fact, one might have felt reasonably assured that Merrill’s capital structure was perfected, but one would have been wrong, however.

Finally, on the 17th of July…. only a week and one half ago, Mr. Thain said,

Right now we believe that we are in a very comfortable spot in terms of our capital.

Sadly, it was not just Mr. Thain that has caused the capital markets a bit of confusion.  Merrill’s President, Mr. Greg Fleming, said of him that

John Thain has been very clear that we have sufficient capital and don’t have a need to raise additional common equity for the foreseeable future. When we raised this capital in January, we had a lot of demand so we went beyond what we needed.

The fact is, no they did not, for Merrill was back in the market yesterday. looking for new and permanent capital. They found it in Temasek… fortunately. One might feel reasonably assured…. Well, you get the picture!.


Don’t these CEOs know that whatever they say to the media creates a permanent transcript?

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  1. Jeff commented on Aug 1

    Wow. So this is what Thain (and other “Music Man” type hucksters) get paid their mega-millions to do? Most of these folks are merely highly paid car salesmen with lofty pedigrees and expensive suits.

    Anyone who now dives into buying this stock gets NO sympathy from me. They deserve everything they get.

  2. mephisto commented on Aug 1

    You’re not a “Harvard man” unless you were there for undergrad…and he wasn’t there for undergrad. Only for his MBA…much like our dear leader Kim Jung Bush.

  3. Bruce commented on Aug 1


    Any idea what the Massachusetts lawsuit may cost MER and do you think other states may file similar suits?


    Bruce in Tennessee

  4. Steve Barry commented on Aug 1

    This has to run afoul of Sarbox, no?

  5. Unsympathetic commented on Aug 1

    BR, there’s no shortage of suckers, so why shouldn’t they? I’m curious why anyone would ever presume a financial exec is telling the truth. I believe they all lie, all the time.

  6. ECONOMISTA NON GRATA commented on Aug 1



    You were quoted in the RGE Monitor. I guess that you already knew that… My point is that’s big. It’s kinda like Pinin Farina quoting Harley Earl in the 50s, about industrial design.

    This is really good company here. I knew it all along.

    Just one thing Barry, please, please, please don’t sell out, please. It’s going to be tempting, just don’t do it.

    Best regards,


  7. Richard commented on Aug 1

    I think the explanation is simple and there is no discrepancy. There are two people making those quotes, Mr. Thain and Mr. Thane.

  8. LALA commented on Aug 1

    The bottom line on this behavior is that that he is being rewarded for LYING. And as long as that continues what incentive is there for him and his peers to tell the truth.

    He can continue to behave like this because the MSM continues to believe that this is the “last time”. A 20% dilutive financing on Teusday (10 days after stating “no need for new capital”) transalted into PLUS 20% on the price of the stock.

    He can continue to behave like this and MER can continue to write off billions because the Fed/taxpayer is now backstopping him.

    He can continue to do this because the fed is more interested in protecting his company from speculators/short sellers that it is in protecting investors from his knowingly materially misrepresenting MER in public statements.

    He can continue to act like this because if he was fired tomorrow for incomptence he will walk away from MER will hundreds of millions of dollars.

    Why in the world would he change?

  9. RJ commented on Aug 1

    Maybe Mr. Gartman should have listened to the last conference call, wherein he would have heard this exchange;

    Meredith Whitney – Oppenheimer
    Given the fact that this is the fourth quarter of material write-down for the company and just knowing what you’re reputation is I can imagine you’re incredibly frustrated and why not at this point be the first to purge assets and just get it over with and if that means raising capital that means raising capital, but you bring people in you want to be long-term shareholders, stock go down, just start fresh, what’s the push-back on that, it seems like the most basic question out there if you could just elaborate on that.

    John Thain
    I agree with you on the frustration part, first of all we are selling assets and so we have sold a lot of assets and we kind of went through what the different ones were. To cut your leverage loan book in half is not the easiest thing to do in this environment. To cut our Alt-A positions down as much as we have and our sub-prime positions. The one place that there hasn’t been a trade yet is in the CDO market and we’re—your question is a very leading one and that would certainly be something that we would be hopeful that we could do.

    Meredith Whitney – Oppenheimer
    Could you set a market by hitting whatever cash bid there is out there and just get it over with?

    John Thain
    No I don’t think we want to do dumb things and so we’ve been I think pretty balanced in terms of what we sold and at what prices we sold them. And so we have not simply liquidated stuff at any price we could get. At some point some of the return profiles that people want you probably wouldn’t want us to sell the assets. So I think we will continue to sell assets but in a way that makes sense from generating returns to our shareholders.

    It’s disingenuous to blame this all on Thain. I mean really, was he supposed to come out on day one and say “Yeah, the balance sheet is so full of crap, I’m not sure if we can make it”? What are the chances of MER raising equity if he were to say something of the sort? He inherited sh#t, and he’s slogging through it. If he did it all at once their insolvent, so he’s got to balance taking it down vs. keeping some sort of credibility.

    Now, one can intone from the above exchange that Thain was once again misleading, but at the same time once can infer that he wants to do exactly what Ms. Whitney said.

    I agree that the financing is dubious, but in order for these institutions to move forward, existing shareholders will have to be thrown under the bus, as dilutive equity is raised to replace crap assets.

    It’s actually the observers fault to not have seen this coming. Maybe Mr. Gratman should spend a little more time studying MER’s balance sheet rather than Mr. Thains public comments.

  10. Jeff commented on Aug 1

    RJ: So you’re making the assumption that Mr. Gartman or anyone else for that matter can trust Merrill’s financials are accurate when it appears that even Thain doesn’t know what he’s dealing with (or outright lying)? Forgive my cynicism, but why in the world would anyone make such an assumption?

  11. Wes Mantooth commented on Aug 1

    He lies so much I don’t believe his name is John Thain.

  12. Empire commented on Aug 1

    They know. It’s just that the last 8 years have taught them that you can make any lie, no matter how bald-faced, no matter how much public record there is that proves it’s a lie, and no one in power will call you on it and there will never be any consequences. It’s the American way!

  13. Mike G commented on Aug 1

    But…but…we live in a “competitive meritocracy”.

    The ability to bald-facedly lie without shame is such a *rare and valuable skill* such that Thain commands millions of dollars compensation in the “free market”.

    You wouldn’t dare question the “free market” would you — are you some kind of non-flag-pin-wearing CommIslamunoterrist?

  14. Sue Herrera commented on Aug 1

    There is no recession and there will never be one again. My bosses won’t allow it.

  15. advsys commented on Aug 1

    Not sure why we are just talking about Thain. They all have done the same.

    The question is why are so many people falling into this pit!
    Fool me once, shame on you. Fool me twice, shame on me. Fool me 7 or 8 times and have me committed!!

  16. Wilbur commented on Aug 1

    I think he practicing so that he can run for political office.

  17. ManchurianCandidate commented on Aug 1

    Hey, you never know, maybe he is kept in a nice office with a gym, a kitchen, video games and lots of hookers all day. They keep him “occupied” and when the time comes for him to look busy they hand him a transcript and he reads it, then returns to disneyland until next time.

  18. Steve Barry commented on Aug 1

    My put call chart tells me the market is about to enter a very rough patch that could last a month or more.

  19. Steve Barry commented on Aug 1

    Plus, I’m on vacation next week…My last 4 vacations, 7/06, 8/07, 11/07 and 7/11/08, market tanked.

  20. TED commented on Aug 1

    BR this is too good to be missed by you (from the London crew at FT Alphaville

    John Thain on Q1 conference call

    On the capital side we’ve increased our saved capital from $36.7 billion at the end of the fourth quarter to $41 billion. We are well capitalized under the risk rated asset test. And for those of you who like to blog, we do not have any plans to raise any additional common equity…

  21. Steve Barry commented on Aug 1

    Citigroup being brought up on fraud charges for auction rate crap…whenever a company names a stadium, disaster seems to follow. Condidering it’s the Mets stadium, I would assume this will get REALLY bad LOL.

    Thanks to CNBC for breaking the news. See, they are not all bad…just kidding. I have seen Cramer’s rant about 5 times today. They are really proud of it and Cramer has never been in higher standing there. I conclude from that the bottom is faaaaaar away.

  22. Steve Barry commented on Aug 1

    I kid you not…Najarian on CNBC thinking a solar eclipse is signaling a bottom.

  23. jam commented on Aug 1

    Mr. Thane er.. Thain. How does that go? I’m on a PLANE er.. PLAIN, I can’t complain.

  24. ARISTOTLE commented on Aug 1

    Steve Barry,

    What on that chart is telling you that a rough patch is ahead?

    Thanks in advance

  25. Thain Drain commented on Aug 2

    This guy should be sued for fraud and misrepresentation of material facts just so he has to sit on the witness stand asserting his defense of being the world’s greatest fool.

    My math on Merrill’s much touted $8.5 billion raise has them taking home less than $3.6 billion. $8.5 billion – 2.5 billion to Temasek – 2.4 billion dollars to preferred shareholders who are converting = $3.6 billion.

    I’m sure they won’t need to go back to the well after that LOL.

    Why LESS than $3.6 billion? I suspect the $2.4 billion “additional dividend” paid to the preferred holders was an enticement to them to convert early. The regular dividend payable in cash or stock at the option of the holder seems not to be mentioned anywhere.

    So let’s start talking about MER’s $3.5 billion net capital raise rather than rooting over an $8.5 billion raise. They got the dilution though … 195,000 shares upon conversion of preferred and another 330,000 or so on the new common issue. If you take that 3.5 billion and divide it by the number of new common shares issued, you end up with a number that is south of $7.00 per share of common stock.

    Great job, Thain. Be sure to reassure us some more regarding your strong capital position.

    Disgusting man. I trust existing stockholders will be filing suit in due course after being diluted by 35% for $3.5 billion net raise.

  26. Blue Bellied Yankee commented on Aug 2

    The “Big Lie” has spread from politics (yellow cake, imminent threat, mushroom clouds, WMDs, aluminum tubes, outing CIA agents, Delay, Folley, Abramhauf, etc etc etc) to business. So what’s the big deal.

    But I do wonder how bucky (US$s) will do under a mountain of lies, disinformation and debt. Not too well me thinks.

  27. Tom commented on Aug 4

    Bennanke’s “well contained”, takes the cake.

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