Daniel C. Sontag, chief of Bank of America’s newly-acquired wealth management division (i.e. Merrill Lynch), fielded some tough questions Monday from miffed Merrill Lynch financial advisors. In an internal video conference Monday held for advisors, Sontag sought to contain damage to the company’s reputation resulting from recent Merrill events—and the surrounding media feeding frenzy. Those events? All front-page fodder, from former CEO John Thain’s abrupt dismissal, the early paying of nearly $4 billion in bonuses to Merrill executives to the unexpectedly large fourth-quarter losses and the fallout from John Thain’s controversial $1.2 million office redecoration bill. Those missteps have apparently disgruntled The Herd, and advisors peppered Sontag with blunt questions. (Registered Rep. obtained access to a copy of the audio portion of the conference.)
One advisor, identified as Mike, bluntly told Sontag it bothered him that only half of Merrill’s brokers, regarded as the “best in the planet,” got bonuses under the recent retention plan and payout overhaul. He said other brokers in the industry don’t match the production levels of the thundering herd. This advisor also critically questioned compensation paid to some top managers. “I look at John Thain—come and gone—and other guys, come and gone. There was a lot of money spent on guys who were here very little time,” he said.
Sontag was also seeking to shore up morale, responding to reports of higher than usual turnover among Merrill’s cohort of some 16,800 brokers. He announced details of a new national public advertising campaign, already launched in publications like Barron’s, that will focus on the firm’s retail financial advisors. Sontag even raised hope he may soften his decision to temporarily suspend a highly-popular junket that recognized big producers.
Sontag, however, mostly fielded harsh questions, despite some occasional positive comments from advisors who joined the national conference call. Sontag acknowledged that the Merrill Lynch brand had been “bruised” over the past 12 months. But he vowed, “to restore the pride.”
Another advisor, Jim, was dumbfounded nobody in senior management ever questioned John Thain’s lavish spending on his Merrill office. “It bothers me that I have to go to my clients and say there is a rank and file difference between us and upper management,” he added.
Thain has now said he will repay the costs, which included $87,000 for an area rug and $35,111 for a commode on legs. “The expenses were incurred over a year ago in a very different environment,” he said in a published memo. “They were a mistake in the light of the world we live in today.” Thain said he will re-pay the firm.
Sontag said news about Thain’s redecoration bill was “disappointing.” So were media reports about recent bonus payments, he added, noting how these made conversations with clients difficult. “Some of you shared e-mail traffic with me you received over the weekend, and it is clear to me clients are upset as are you—and I think rightly so,” he said.
As for the bonus payments, he said, contrary to what was reported in the media, the Merrill bonus pool for 2008 was “down significantly.” Last year, in aggregate, it was 41 percent lower than 2007, he contended. “You should know it was in line with many of our competitors in similar situations who also received TARP [Troubled Asset Relief Program] money,” Sontag said.
On Tuesday, New York attorney general Andrew Cuomo issued subpoenas to Thain and Bank of America’s chief administration officer, J. Steele Alphin, as part of investigations into the bonus payments to Merrill executives prior to the firm’s sale to Bank of America. The bonus payments embarrassed the firm, since Merrill was about to report fourth-quarter losses of some $15 billion.
Sontag acknowledged a higher rate of turnover among advisors than usual, but said there was similar turnover in other difficult periods, such as the downturn after the 2001 tech wreck. He also said more than 60 percent of the assets of advisors who had left, still remain at the firm. “I am telling you that as a fact, not in any way as a threat,” Sontag added. “I think that says a lot about the quality of our business.”
In one of the softer questions, an advisor , who just recently qualified for the Chairman’s Club, proposed Sontag revise his decision to raise requirements for the temporarily suspended junket for big producers. “I know it is a controversial decision,” responded Sontag. “I want to reiterate that it was my decision. …Why don’t we see how the year pans out. … I am going to be realistically optimistic that perhaps the year turns out better than people think at this point.” Another advisor, who indicated he qualified for the trip under the previous production requirements, said he was very disappointed he was not going, “but not as half as disappointed as my wife.”