CORRECTED - NEWSMAKER-Thain: Unlikely poster boy in Wall St blame game

(Corrects name of analyst's company in third paragraph)

By Elinor Comlay

NEW YORK Jan 22 (Reuters) - The bloodletting in Wall Street's top ranks claimed a big target on Thursday as Bank of America ousted former Merrill Lynch CEO John Thain, who last fall won accolades for the deal that saved the storied bank and its "thundering herd" of brokers.

Thain, a reserved MIT grad, who once was nicknamed "I-robot," was regarded until 14 months ago as one of Wall Street's steadiest hands. But mounting losses at Merrill have critics blasting his compensation and lavish spending on office decorations.

"What we are seeing is the end of the Masters of the Universe," said Nancy Bush, analyst with NAB Research. She explained that the extravagant lifestyle long associated with major Wall Street dealmakers is no longer acceptable.

An unlikely poster boy for a blame game, Thain was blindsided as the mortgage crisis spiraled into a credit crunch and then a full-blown global recession that forced Merrill to sell itself to Bank of America at a fire-sale price.

Once Goldman Sachs Group's (GS.N) head of operations and technology, Thain received the "I-robot" nickname when he was CEO of NYSE Euronext, which he pulled into the electronic era, winning an image for leadership.

Thain, whose departure is effective immediately, was unavailable for comment. He hardly seemed like the kind of executive who would be remembered for over-the-top perks.

Yet Thain's reputation unraveled as an unexpected $15.31 billion fourth-quarter loss at Merrill left Bank of America threatening to abandon its acquisition of the brokerage without government financing.

Suddenly critics took notice of reports that he had requested a bonus and spent $1,405 on a garbage pail during a $1.22 million renovation of his office.

"HIS SITUATION WAS NOT WORKING OUT"

On Thursday, Bank of America CEO Kenneth Lewis flew to New York to meet Thain and "it was mutually agreed that his situation was not working out, and he would resign," Bank of America spokesman Robert Stickler said.

Lewis last week expressed dismay about the size of losses from mortgages and other toxic debt on the books of Merrill, which Bank of America decided to acquire the same weekend as Lehman Brothers failed in September.

It is an abrupt fall for Thain, whose years as chief operating officer at Goldman Sachs and running NYSE had won him the sobriquet "Mr Fix-It."

That's just what Merrill needed when he took over in December 2007, after predecessor Stanley O'Neal dove deeply into the toxic mortgage debt that would prove Merrill's undoing.

Known as a temperate, methodical dealmaker, Thain had commanded respect and loyalty from his staff at the NYSE and Goldman, some of whom followed him to Merrill Lynch.

In September, Bank of America Chief Executive Kenneth Lewis lavished praise on Thain at a press conference announcing the Merrill purchase. Lewis said his counterpart worked selflessly to ensure the best deal for his shareholders and his staff.

"It was never about him; it was always about the deal," Lewis said.

But Thain's focus on the business perhaps cost him a sense of awareness and proportion that might otherwise have prevented some missteps.

CNBC reported on Thursday that Thain hired well-known Los Angeles interior designer Michael Smith to redecorate his Merrill office a year ago. The $1.22 million bill included $35,115 for a "commode on legs" and the $1,405 waste can.

In December, The Wall Street Journal reported that Thain had been seeking a bonus of $5 million to $10 million. Such a request seemed inappropriate at a time when the government was providing hundreds of billions of dollars to bail out the banking sector.

"He is better at processes than people," said Bush.

Many had questioned whether Thain would play second fiddle at Bank of America after he was named head of global banking, securities and wealth management. Lewis is 61 and there has been no immediate sign that he is planning to retire.

"I was surprised that he lasted as long as he did in a way," said David Dietze, chief investment officer at Point View Financial Services in Summit, New Jersey. "I didn't see him as just a comfortable lieutenant to Ken Lewis."

In September, few analysts or investors could have foreseen Thain exiting in January under such a cloud of allegations.

CREDIBILITY CONCERNS

Thain's credibility first came under fire last year, after he repeatedly underestimated Merrill's capital needs.

"Right now we believe that we are in a very comfortable spot in terms of our capital," Thain said on a July 17 conference call about a $4.9 billion second-quarter loss.

But less than two weeks later, Thain accepted pennies on the dollar in selling $30.6 billion in repackaged debt. The following month, Merrill sold more than $8.55 billion of common shares to boost its capital

Some investors began to question the reputation for leadership that Thain had built over more than two decades.

Concerns about a lack of disclosure and judgment of Merrill's problems may have been the last straw for Thain.

"If he could have learned anything it was that you have to get everything out in the open -- because if not, you're going to get taken out to the woodshed," said Malcolm Polley, chief investment officer at asset manager Stewart Capital Advisors.

(Reporting by Elinor Comlay; Editing by David Gregorio)