May 16 (Bloomberg) -- Merrill Lynch & Co. said Dow Kim, who spearheaded an expansion that doubled trading revenue in three years, is leaving and it named two bankers as co-presidents in the company's biggest shakeup since 2003.

Kim, 44, will start his own investment firm and serve as an adviser to senior management for a transition period, New York- based Merrill said. Gregory Fleming, 44, who led trading and investment banking with Kim, and Chief Administrative Officer Ahmass Fakahany, 48, were promoted to become the top deputies to Chief Executive Officer Stanley O'Neal.

The departure makes Merrill the only one of the five largest U.S. securities firms without a trading veteran in its highest ranks at a time when equities, fixed income and commodities is providing almost half of the company's revenue. Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. are all run by executives with a background in sales and trading.

``When the profits are being generated from trading and they've ratcheted up the risk, you need someone who knows what that's all about,'' said Henry Higdon, who runs New York-based executive recruitment firm Higdon Partners LLC.

Kim is the most senior executive to leave Merrill, the world's third-largest securities firm, since Executive Vice Chairman Thomas Patrick and Arshad Zakaria, head of trading and investment banking, left four years ago. At the time, O'Neal, 55, said he didn't plan on naming a president for five years.

O'Neal Staying Put

In an interview distributed to Merrill employees today, O'Neal said that while he ``won't have the operations reporting directly'' to him anymore, he is ``not planning on going anywhere.''

``I intend to remain in my present situation,'' O'Neal said. Fleming and Fakahany ``will be much more involved with day-to-day management function.''

Merrill shares rose 90 cents to $92.48 in composite trading on the New York Stock Exchange at 4 p.m. They're down 0.7 percent for the year, trailing Goldman and Morgan Stanley and outperforming Lehman and Bear Stearns.

O'Neal said in the statement that Kim was a ``valued and energetic'' member of the firm. The decision to leave was Kim's own, Merrill spokesman Jason Wright said.

``Dow has been very clear in the organization that he has never considered himself a candidate for CEO, because he has never wanted to be,'' Wright said in an interview. ``He wants to trade.''

Hedge-Fund Lure

Kim was the second-highest-paid executive at Merrill after O'Neal, receiving $37 million in compensation for 2006, or 32 percent more than the year before. Fleming got $34 million, a 48 percent increase. O'Neal got a 30 percent raise to $48 million, and Fakahany received a 43 percent increase to $30 million.

The decision to leave a firm that's earning the most in its 93-year history shows the allure of even greater compensation in the hedge-fund industry. At least three top hedge fund managers made more than $1 billion last year, according Institutional Investor's Alpha magazine.

Merrill said it's in discussions to become a client of Kim's new firm.

``That's smart because you know him, you've trained him, so I assume that Merrill still has confidence in him,'' said Les Satlow, who helps manage $420 million at Cabot Money Management in Salem, Massachusetts.

Banwell, Pandit

Last week, Bank of America Corp. said it would acquire a minority stake in a hedge fund created by its former chief investment officer, Ian Banwell.

Other senior Wall Street executives who have left to start hedge funds include Vikram Pandit, Morgan Stanley's former head of investment banking and trading. Pandit's firm, Old Lane LP, was bought by Citigroup Inc. last month for about $800 million and he joined the bank as head of alternative investments.

Fleming and Fakahany will choose new managers for the investment-banking and trading division, the firm's biggest. Kim's deputies in trading are Osman Semerci, the 39-year-old head of fixed income and commodities, and Rohit D'Souza, 42, who runs equities. Jason Brand has partial responsibility for the trading unit as head of Merrill's Asia region, Wright said.

Kim is ``one person out of an army,'' said Steve Roukis, who oversees $1.7 billion, including Merrill shares, as managing director at Matrix Asset Advisors in New York. ``They've got many thousands of people there who are competent.''

Zakaria's Replacement

Robert McCann, 49, who oversees Merrill's corps of almost 16,000 brokers and was paid $23 million last year, will report to Fleming and Fakahany jointly, Wright said. Previously McCann reported directly to O'Neal.

Kim, a native South Korean who joined Merrill in 1994 and became head of debt trading in Tokyo, was promoted to co-head of trading and investment banking in October 2003, when he and Fleming replaced Zakaria. Trading revenue at Merrill has since doubled to a record $14.9 billion in 2006.

Under O'Neal, Kim led Merrill's push into commodities trading, including the $800 million purchase in 2004 of an Entergy-Koch LP unit that dealt in natural gas and power. He also oversaw the $1.3 billion acquisition in December of First Franklin Financial that made Merrill one of the biggest underwriters of subprime mortgages.

Kim shook up his own management ranks last year, dispatching Jeff Kronthal, Harry Lengsfield and Doug DeMartin and replacing them with Semerci and D'Souza.

Yale Degree

Fleming, a 15-year Merrill veteran with a law degree from Yale University, 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. A career investment banker, he also helped to orchestrate the swap last year of Merrill's asset- management arm for a 49.8 percent stake in BlackRock Inc., the biggest publicly traded U.S. fund manager.

Fakahany, a former Exxon Corp. finance executive, joined Merrill in 1987 and has risen through the finance and administrative ranks. In his current post, which he has held since 2005, Fakahany oversees the corporate treasury, risk management, technology and human resources. His reports include Chief Financial Officer Jeffrey Edwards, 46. The CFO will now report directly to O'Neal.

Carter Burgess, a former Salomon Brothers investment banker who's now a managing director at Greenwich, Connecticut-based executive recruiter RSR Partners, said the appointment of an investment banker and career administrator to oversee the company may irk the firm's traders.

``It might have an adverse effect on morale among the troops on the trading side,'' Burgess said. ``From a representation standpoint, they like to know that one of the people leading them comes from their world.''

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

Last Updated: May 16, 2007 16:33 EDT