No matter which way you look at it Ken Lewis's bail-out of Merrill Lynch looks increasingly wrong-headed.

John Thain - the man who sold the pony to Lewis - has now fallen on his sword after Merrill posted more than $15 billion in surprise losses just three weeks ago. The shock revelation followed the disclosure of early bonus pay-outs to Merrill staff in December. Thain's case was not helped by his own demands for a $10 million bonus - since waived - in November, and unseemly reports from CNBC that amidst all the turmoil following his appointment at Merrill last year he managed to run up a $1.22 million bill redecorating the executive office suite. Fashionable LA interior designer Michael Smith included some extravagant touches, such as two guest chairs at $43,892 each (presumably made of gold) a  $35,115  "commode on legs" and $1,405 parchment waste can.

Lewis - recently voted American banker of the Year - may be well-shot of Thain, (apparently the news was greeted with cheers by depressed BofA staffers in London) but he's still lumbered with the problem of what to do with Merrill Lynch. The original idea, to create a globe-straddling financial supermarket in the mould of Citibank, has already been largely discredited - not least by Citibank itself.

Assuming the bank can avoid the very real prospect of all-out nationalisation, the best that can be hoped for is to keep Merrill's toxic legacy at a distance until the markets stabilise sometime over the next three years and then spin it off through an IPO.

For Lewis, that American Banker gala dinner in December must seem a lifetime ago.