Oct. 28 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer Stan O'Neal has decided to leave the company, the Wall Street Journal reported, citing an unidentified person familiar with the matter.

An announcement may come later today or tomorrow morning. The company's board will look inside the New York-based firm as well as outside for a replacement, the newspaper said, citing the unidentified person.

BlackRock Inc. Chief Executive Laurence Fink and Merrill Co- President Gregory Fleming are in the running for O'Neal's job leading the third-largest U.S. securities firm, and there may be a power-sharing arrangement between the two, the newspaper said. Bob McCann, the head of the company's retail brokerage, is also a candidate, the paper reported.

O'Neal, 56, would be the first Wall Street chief executive forced out for failing to grasp the extent of a credit-market contraction that has cost the world's biggest banks and brokerages at least $30 billion. He lost the confidence of investors after posting a $2.24 billion loss, six times the amount the firm forecast just three weeks earlier.

``A cleanup was necessary,'' said Peter Sorrentino, who helps manage $12 billion, including Merrill shares at Huntington Asset Management in Cincinnati. ``The whole executive suite needs to change. It wasn't one person's bad decisions -- there are a lot of fingerprints on this murder.''

Merrill spokeswoman Jessica Oppenheim declined to comment.

First Franklin

The company climbed 8.5 percent to $66.09 in New York trading on Oct. 26, the biggest rise in five years, on speculation O'Neal would go. Investors drove the shares down 9.3 percent in the two days after the firm reported its loss.

Under O'Neal, Merrill bought subprime mortgage lender First Franklin Corp. for $1.3 billion in December, just as the real- estate market peaked. He announced an $8.4 billion writedown Oct. 24 on loans and bonds backed by home loans, almost double Merrill's estimate on Oct. 5.

The firm may have to cut the value of its holdings by $4 billion in the fourth quarter, on top of the $8.4 billion charge, which included costs for loans to finance leveraged buyouts, according to CIBC World Markets.

Merrill was downgraded on Oct. 25 by four analysts who said the value of the firm's subprime mortgage assets will probably erode further. Goldman Sachs Group Inc., UBS AG, Wachovia Corp. and Sanford C. Bernstein & Co. analysts cut their recommendations from the equivalent of buy to hold.

Call to Wachovia

O'Neal broached the possibility of a merger late last week in a call to Wachovia Chairman and CEO Ken Thompson without consulting Merrill directors, the New York Times reported Oct. 26, citing people with knowledge of the matter. The move angered the board, and it discussed possible candidates to replace him including BlackRock CEO Fink and NYSE Euronext CEO John Thain, the newspaper said.

Merrill has declined 29 percent this year in New York trading, the most of the five biggest U.S. securities firms. All of them have dropped except Goldman Sachs, the largest and most profitable.

The loss was O'Neal's biggest misstep since he became CEO in 2002. He has criticized acquisitions made under his predecessor, David Komansky, whose expansion culminated in a $1.7 billion charge in the fourth quarter of 2001, then a record in the firm's nine-decade history.

``It's another case of a Wall Street CEO who got away with too much after being given too much leeway,'' Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street, said in an Oct. 26 interview.

Fink's Creation

Fink, 54, a pioneer of the mortgage-backed bond market, founded BlackRock in 1988 with capital from private-equity firm Blackstone Group LP. PNC Financial Services Group Inc. bought the company for $240 million in 1995 and sold a stake to the public four years later. BlackRock is now the biggest publicly traded U.S. fund manager.

Fink sold a 49.8 percent stake in BlackRock to Merrill in February last year in return for the bank's fund-management unit, creating a firm with $1 trillion of assets.

Fleming, 44, was promoted in May to co-president at Merrill after helping to lead the trading and investment banking division. A career investment banker, Fleming led Merrill's push into private equity, one of O'Neal's top initiatives and a business that contributed $1.5 billion of revenue last year. He also helped to orchestrate the swap last year of Merrill's asset- management arm for a 49.8 percent stake in BlackRock.

Fleming, McCann

Before joining Merrill in 1992, Fleming worked as a principal at consulting firm Booz, Allen & Hamilton. He received a law degree from Yale University and a bachelor's degree in economics from Colgate University.

McCann, 49, was tapped to oversee Merrill's corps of 16,600 brokers in 2005 after serving as vice chairman of wealth management. He reported directly to O'Neal until May, when Co- Presidents Fleming and Ahmass Fakahany became his immediate bosses.

McCann, who first joined Merrill in 1982, left his position as head of research in 2003 to join Axa Financial Inc., the U.S. unit of Europe's second-biggest insurer. Six months later, O'Neal brought McCann back as a senior lieutenant after two of O'Neal's top deputies -- Thomas Patrick and Arshad Zakaria -- left Merrill.

McCann has an MBA from Texas Christian University and a bachelor's degree from Bethany College.

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Chris Dolmetsch in New York at cdolmetsch@bloomberg.net.

Last Updated: October 28, 2007 16:24 EDT