|E. Stanley O'Neal is said to have angered the Merrill board by initiating merger talks with Wachovia Corp. without its knowledge.|
Merrill Lynch chief may face removal following $2.24b loss
The board of Merrill Lynch, its frustration mounting over the brokerage's credit losses and the decision making of its embattled chief executive E. Stanley O'Neal, has begun to actively consider whether to replace him and with whom.
The board's deliberations underscore O'Neal's precarious position. Once credited with turning Merrill Lynch around, he is struggling to retain his job after a third-quarter loss of $2.24 billion and an $8.4 billion charge for failed credit and mortgage-related investments. He has also clashed with directors over an approach he made to rival Wachovia for a possible merger, The New York Times reported yesterday.
If O'Neal were to go, he would be the first chief executive of a major bank to leave as a result of problems that started this summer with subprime mortgages. Others have seen their reputations shaken - Charles Prince III, head of Citigroup, who has been criticized for the bank's $5.9 billion write-down, and James Cayne at Bear Stearns, who presided over the collapse of two hedge funds.
During the housing boom, investment banks, Merrill Lynch in particular, invested aggressively in complex pools of securities tied to subprime debt. When housing prices began to decline, so did the value of these securities.
There are several scenarios for Merrill: follow tradition and choose from within, perhaps either its brokerage unit head Robert McCann, or copresident Gregory Fleming, or break with the past and pick an outsider.
Directors spent much of yesterday on the phone, exploring options related to O'Neal's future. Discussions are expected to continue through the weekend if not next week. While O'Neal has told people close to him that his days at the firm may be numbered, and the board has voiced displeasure over his conduct as well as the broader risk management practices at the firm, there is the possibility that O'Neal will stay.
On the face of it a brief conversation about a possible merger with a fellow chief executive at a rival bank is by no means a firing offense. But in O'Neal's case, the proposal, even though he presented it as one of several options, elicited a sharply negative reaction from directors, the majority of whom were handpicked by him.
Largely, this was because the board had already lost confidence in O'Neal after it became clear that Merrill would have to take additional charges. That O'Neal would make such a move without briefing the board also angered directors. With shares at a two-year low, the board was in no mood to entertain such a radical solution.
Shares, however, rose sharply yesterday on the news, finishing at $66.09, up $5.19 or 8.5 percent.
According to people briefed on the board's deliberations, O'Neal pitched the idea of a merger with Wachovia as one of several options the firm was considering as a way to improve its fortunes. Other possibilities raised included a direct equity infusion by an outside investor and a sale of Merrill's 20 percent stake in Bloomberg, a holding that some analysts have valued as high as $4 billion.