Wall Street Bank Chief Requests $10m Payout

Merrill Lynch is risking a confrontation with US authorities as the Wall Street bank debates awarding a $10m (£6.7m) bonus to its chief executive, John Thain.

The Merrill compensation committee was expected to hear Thain's bonus recommendations for himself and his executive team yesterday, amid speculation that he will ask for $10m for this year.

However, it was reported that Andrew Cuomo, New York attorney general, has written to the bank's board to warn that the payment would be "unjustified". Cuomo warned last month that any institution bailed out by the $700bn Troubled Asset Relief Program (Tarp) must not use federal cash to fund executive bonuses.

Merrill has not requested Tarp money but has sought safety in a takeover by Bank of America, which received $15bn from the US treasury program. According to the Wall Street Journal, Merrill's compensation committee is prepared to block the bonus request despite admiring Thain's swift engineering of the BoA deal in September. The transaction removed the immediate risk that Merrill would follow Lehman Brothers into the severe difficulties that ultimately ended in bankruptcy.

BoA declined to comment. It said Merrill remained an independent company until the takeover is completed this month. However, a spokesman confirmed that the bank has pledged not to use Tarp funds to pay for executive bonuses.

Thain joined Merrill a year ago from the New York Stock Exchange and was paid $9.6m by the NYSE in 2006. He received a "golden hello" of $15m and his basic salary at Merrill is $750,000.

Merrill declined to comment and the attorney general's office did not return calls. Another Wall Street bank that has tapped the Tarp fund, Morgan Stanley, is expected to decide this week whether its chief executive will receive a bonus this year. John Mack waived his bonus last year but his firm is under the same pressure as Bank of America, having accepted $10bn from the US treasury.

Goldman Sachs, which shared a record $18.8bn bonus pool last year, has taken steps to head off a PR furore over pay this year. Its top executives, braced for bleak fourth-quarter earnings, have asked the bank's compensation committee to scrap their bonuses for this year. They include Lloyd Blankfein, the bank's chief executive, who claimed a bonus of $67.9m after the firm escaped the worst of the initial stages of the credit crunch last year. However, it was forced to seek $10bn from the Tarp this year as the credit crisis worsened.

The Tarp includes a bar on "golden parachute" payments and rewards for executives who take excessive risks. However, the government accountability office, the investigative arm of Congress, has warned that the US treasury has yet to address "critical issues" such as ensuring that banks accessing Tarp funds are keeping to pay guidelines.

Cuomo and Henry Waxman, the incoming head of the energy and commerce committee in Congress, have demanded information on executive pay scales from major banks. Last month Cuomo urged other banks to cancel top-level bonuses. "We strongly encourage other banks to follow Goldman Sachs's step," he said.

So far, 89 banks have requested a capital injection from the Tarp, which has now allocated $335bn of the first $350bn earmarked for rebuilding balance sheets.