Feb. 19 (Bloomberg) -- Merrill Lynch & Co.'s Craig Lipsay, one of two U.S. executives overseeing sales of investments linked to bonds, currencies and interest rates, left the firm as part of an overhaul of its fixed-income division, three people familiar with the matter said.

Lipsay, 44, was co-head of the Strategic Solutions Group, a 70-person unit that sold derivatives, said the people, who declined to be identified because Merrill hasn't announced his departure. He left Feb. 1, eight months after being hired from Morgan Stanley under a contract guaranteeing his pay for two years. Other team members are being reassigned, the people said.

Chief Executive Officer John Thain, 52, who joined Merrill in December following the ouster of Stan O'Neal, is retooling the fixed-income business after mortgage-related losses last year saddled the third-largest U.S. securities firm with a $7.8 billion loss. At least 20 traders and bankers in the division have lost their jobs or quit in the past two months.

``With all the things that happened in the credit crisis, they're going to really analyze who's leading the ship in every area,'' said Jeanne Branthover, a managing director at Boyden Global Executive Search in New York who represents current and former Merrill employees looking for jobs.

Lipsay, reached by telephone, confirmed he left New York- based Merrill on Feb. 1 and declined to comment further. Company spokeswoman Jessica Oppenheim declined to comment.

Merrill hired Lipsay in June 2007 from Morgan Stanley, the second-largest U.S. securities firm, where he had worked since 1996, according to regulatory records. He previously worked at Citigroup Inc. and Kidder, Peabody & Co., the records show.

Reversal of Fortune

Lipsay's short tenure at Merrill underscores how quickly fortunes have turned for traders, bankers and salesmen who specialized in securities and loans infected by surging defaults on subprime mortgages. The biggest banks and securities firms have reported at least $146 billion of writedowns and credit losses since the beginning of last year, according to data compiled by Bloomberg.

Merrill's Strategic Solutions Group oversaw sales of collateralized debt obligations, or CDOs, which are investments packaged from mortgage bonds, loans and other forms of debt and sold with a range of credit ratings. CDOs lost their allure last year as the U.S. housing market slumped and more borrowers fell behind on monthly mortgage payments.

CDO Writedowns

Merrill was the biggest underwriter of CDOs in 2006, packaging about $55 billion of the securities, according to Thomson Financial. Writedowns on CDOs and subprime mortgages led to a $9.8 billion fourth-quarter loss, the widest in the firm's 94-year history. O'Neal stepped down in October after a $2.24 billion third-quarter loss that also included CDO writedowns.

David Sobotka, who had been head of commodities trading based in Houston, was named worldwide head of fixed-income last year after the dismissal of the group's previous leader, Osman Semerci. Doug Mallach, head of fixed-income sales in the U.S., previously reported to Semerci and now reports to Sobotka.

Mallach, who hired Lipsay last year, referred a call to Oppenheim, who declined to comment on his behalf.

Other fixed-income executives who have left amid the division's overhaul include Theo Constantinidis, a London-based executive who led a unit that developed custom debt products; and Graham Goldsmith, the New York-based head of a distressed- debt-investing team who left to join the hedge fund Strategic Value Partners LLC.

The firm is eliminating 11 jobs through the closure of a Japan real-estate financing unit, and in January it fired at least eight bankers in London from a group that sold asset- backed debt and invested the firm's money.

The company's stock price has tumbled by almost half in the past year, dropping $1.51, or 2.9 percent, to $50.13 today in New York Stock Exchange composite trading.

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

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

Last Updated: February 19, 2008 16:44 EST