Merrill CEO said bound for exit

Times Staff Writer

The beleaguered head of Merrill Lynch & Co. has reportedly decided to step down and leave the firm, becoming the first chief of a Wall Street investment bank to be done in by the sub-prime mortgage crisis.

Stan O’Neal, who endured withering criticism last week because of Merrill’s enormous losses on mortgage-related securities, will quit his post as soon as today, according to a report on the Wall Street Journal’s website.

Several candidates are in the running to replace O’Neal, with Laurence Fink, chief executive of money manager BlackRock Inc., which is partially owned by Merrill, considered the leading candidate. Also thought to be under consideration are Robert McCann, the head of Merrill’s powerful brokerage division; and John Thain, the chief of NYSE Euronext Inc., the parent company of the New York Stock Exchange.

A Merrill spokeswoman declined to comment on Sunday.


O’Neal’s apparent demise is rapid even by the standards of Wall Street, which has never been known for job security. O’Neal earned generally high marks throughout much of his five-year tenure. But few executives have suffered the kind of back-to-back blows O’Neal did last week.

On Wednesday, Merrill wrote down $7.9 billion in losses caused by beaten-down sub-prime and other mortgage-related securities, the largest such hit taken by any Wall Street firm.

Less than three weeks earlier, Merrill had forecast $4.5 billion in mortgage write-downs, which itself had followed earlier assurances from the company that its mortgage-related hits would be moderate. The $3.4-billion increase in such a short span caught analysts and investors flat-footed and raised doubts about Merrill’s credibility in estimating and disclosing its losses.

Including losses on bonds related to troubled private-equity deals, Merrill’s total write-down was $8.4 billion and its third-quarter net loss was $2.2 billion.


O’Neal also was hurt Friday by a reported overture to Wachovia Corp., a North Carolina-based banking giant, about a potential merger. O’Neal, who is also Merrill’s chairman, reportedly angered his fellow directors by approaching Wachovia without their knowledge.

Analysts wondered why O’Neal would court Wachovia, an up-and-coming bank but much less established than other potential partners such as JPMorgan Chase & Co. or Bank of America Corp.

Some speculated that it was a sign of desperation in Merrill’s executive suite.

O’Neal could have been paid as much as $274 million if Merrill was acquired by another company, according to an analysis by James F. Reda & Associates, a New York-based compensation-consulting firm.


O’Neal would take home far less if he was pushed out but still would leave Merrill a rich man.

He would walk out the door with about $154 million in pension payments, stock options and direct holdings of Merrill stock, said James Reda, the firm’s founder. O’Neal could pocket more if Merrill’s board gives him a severance, Reda said.

That would come on top of the $48 million he was paid last year, one of the richest packages on Wall Street.

“He’s going to be very well off,” Reda said.


O’Neal, 56, is the highest-ranking African American on Wall Street and was considered a rising star when he ascended to Merrill’s top post in 2002.

O’Neal quickly reshaped the venerable brokerage house, lopping off thousands of jobs and pushing the firm into more lucrative but riskier business lines, such as the origination and repackaging of sub-prime mortgages.

He has been known as a savvy political infighter who held power in part by pushing out senior executives, including one-time allies, who clashed with him.

The O’Neal drama has jump-started speculation that CEOs at other Wall Street firms -- including the much-maligned Charles Prince at Citigroup Inc. -- may also be shown the way to the exit.