Something?s Rotten in BofA Merrill

I’m unsure if “Lewis and Thain” has become a comedy or tragedy, but either way the latest act of the marriage between Ken Lewis’s BofA and John Thain’s Merrill Lynch has certainly turned out to be compelling drama.

To bring you up to date, last September BofA agreed to acquire (and, in effect, save) an ailing Merrill Lynch. A few months later, in December, the deal was officially approved. Three days prior to the deal closing, it was discovered later, some checks were signed—bonus checks for Merrill’s big hitters—and they were signed more than a month earlier than customary (Merrill has typically cut bonus checks in late January/early February). Not long after these payouts (sanctioned by Merrill CEO John Thain) were made, BofA went back to Uncle Sam to ask for even more bailout money. All this happened while accountants were tallying Merrill’s 2008 financial results (that included a $15 billion loss in the fourth quarter alone), which ultimately came out well below anyone’s wildest expectations (including those of BofA shareholders, those blokes and birds who voted to purchase Merrill).

What does all this mean?

For one, it means John Thain has some answering do, as does Ken Lewis. Thain will be questioned about the untimely bonus checks, Lewis about his lack of thorough due diligence on Merrill. It also means employee morale at BofAML won’t be winning any awards. Merrill execs getting paid and paid well for 2008 (compensation only fell 6 percent at Merrill during the horrible year) while BofA’s execs were largely foregoing their big paychecks will not produce a happy marriage.

Though, of course, it will provide for an intriguing act four. So stay tuned.

And as for those not involved in this marriage, it means they will again be deemed guilty by association: as a result of yet another apparent bonus scandal, expect even more regulation on year-end incentive payouts in the years to come.