April 24 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain cast the firm's ill-fated subprime-mortgage investments as a ``problem that's industrywide'' and said board members should be spared criticism based on ``20/20 hindsight.''

``Lots of people have these problems, and these were at least purportedly AAA-rated securities,'' Thain said, responding to shareholders at the company's annual meeting today in New York. ``It's always easy to say, `Well, gee, how come someone didn't see this?' That was true in most bursting of bubbles.''

The meeting was Thain's first with Merrill shareholders, who have watched the stock fall 52 percent in the past year and had their stakes diluted as the firm raised more than $15 billion from outside investors. Merrill's board of directors recruited Thain, 52, from NYSE Euronext in December after the ouster of Stan O'Neal, who had served as CEO since 2002.

More than $30 billion of writedowns on subprime mortgages, bonds and loans bought under O'Neal have hobbled the third- biggest U.S. securities firm by market value, hampering Thain's ability to engineer a quick turnaround. The firm has reported net losses totaling $14 billion over the past three quarters and said last week it's cutting about 3,000 jobs, on top of about 1,000 previously announced.

Merrill shares rose 7.1 percent today after Thain said he's a believer in ``the strength in the business of Merrill Lynch, the strength in the brand of Merrill Lynch, and the strength of the culture.'' The company said today in a statement it would maintain its dividend at 35 cents a share, payable May 28 to shareholders of record on May 8.

`Strategic Sense'

Thain said he has no plans to separate the firm's brokerage from its investment bank or sell its 49.8 percent stake in BlackRock Inc., the New York-based money manager. He also said he has no intent to sell Merrill's passive 20 percent stake in Bloomberg LP, the parent of Bloomberg News.

``The combination of the world's leading wealth-management business with a global investment-banking, sales and trading franchise makes tremendous strategic sense,'' Thain said. Merrill shares gained $3.18 to $48.09 in composite trading on the New York Stock Exchange at 4:15 p.m.

Responding to shareholders who sought changes to the firm's corporate governance, Merrill said today in a statement it has decided to require board members to stand for reelection every year. Until now, only a handful of board members could be voted off each year, a practice that some shareholder advocates say reduces accountability.

Warning Signs

At least two shareholders at today's meeting asked board members why they missed warning signs that might have prompted them to halt O'Neal's investments in subprime mortgages and collateralized debt obligations, the mortgage-related securities that have caused the most writedowns.

Ann Reese, chairwoman of Merrill's audit committee, said the board had ``numerous discussions'' with management about the investments in the months before the credit crisis. The board initially didn't realize that prices of CDOs were linked to the U.S. housing market, she said.

``The CDO position did not come to the board's attention until late in the process,'' said Reese, a former chief financial officer of ITT Corp. who now is co-executive director of the non- profit Center for Adoption Policy. ``For reasons that we have subsequently explored, there was not a sense that these triple-A securities should be included in the overall exposure to residential real estate.''

More CDOs

After board members became aware of the investments, ``we took the actions that we thought were appropriate,'' she said.

O'Neal was dismissed last October, and Thain has since overhauled Merrill's risk-management controls.

Merrill still has about $26 billion of CDOs, and Moody's Investors Service said last week it may cut Merrill's credit rating for the second time in six months, citing ``deteriorating conditions in the mortgage market'' and the potential for $6 billion of writedowns in addition to those announced in the past three quarters. Last October, Merrill's rating was lowered one level to A1, the fifth-highest of 10 investment-grade ratings.

In a discussion with reporters after the meeting, Thain acknowledged Merrill's investment-banking business may slow as rising energy and food prices, falling home prices and higher unemployment ``start to reverberate throughout the consumer- driven part of the economy.''

Merrill's investment-banking fees totaled $805 million in the first quarter, down 40 percent from a year earlier as CEOs delayed mergers and stock and bond sales amid slumping markets.

``The credit-related markets are getting better, but I'm concerned that the real economy is going to experience more difficulties,'' Thain said. ``You'll see more investment-banking business driven outside the U.S. than inside the U.S.''

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

Last Updated: April 24, 2008 17:40 EDT