The appointment of NYSE Euronext (NYX) chief John Thain to replace Stan O'Neal as CEO of Merrill Lynch (MER) caught almost everyone on Wall Street by surprise. The scuttlebutt had been that Thain was headed for the top job at Citigroup (C) after the abrupt exit of Chuck Prince. Larry Fink, founder and boss of BlackRock (BLK)—which is partly owned by Merrill—was widely rumored to be O'Neal's replacement. But by the end of business on Nov. 14, Thain was set to sit atop Merrill. I caught up with him that day on CNBC and then again after his first visit to his new firm.
What is the Merrill board asking you to do, specifically?
The board is looking for leadership. The board is looking for strategy and direction. The board's looking to unify the company. And it's also looking to focus on some specific concerns—risk management and, of course, the fixed-income areas. And also to further develop the senior management team.
How long did it take you to go through the books at Merrill? Some people say it's worse than we know. How long was your due diligence?
Whoever is saying that, I don't know what access they had to the information, but I had complete access to Merrill's books for as long as I wanted. There was no issue at all with giving me as much information or as much time as I wanted.
Merrill owns 49% of BlackRock, which is run by Larry Fink. Will you work together or make changes to that ownership?
I look forward to working with Larry. He's done an unbelievably good job building BlackRock into one of the most successful financial management companies.
Was he approached for the CEO job at Merrill?
I had nothing to do with that, so I don't know. You have to talk to the board about that.
Were you approached to head Citigroup?
I did have conversations with Citigroup.
Was that not an attractive option for you?
No, that's not the way to characterize the question. I chose to move forward with Merrill because of the attractiveness of the opportunity there.
How would you characterize the culture of Merrill Lynch?
It's a little early for me to answer that question. I have to learn the culture. I need to spend time with the people. But what I would say from the people I've met so far—and I actually just came from Merrill Lynch, so I have a feeling—there is a strong culture there. They are very proud of Merrill Lynch, and that's a great opportunity to build on.
Do you think of Merrill as "Mother Merrill"?
Well, I don't know. I wouldn't have used that phrase. I think that phrase had a negative connotation in the past, and I don't think about it that way. I don't know if they think about it that way.
A couple of weeks ago, I interviewed Win Smith, who is a former top Merrill executive and the son of one of the founders of the firm. He said the thing he found most disturbing about Stan O'Neal was that Stan came in and just started cutting talented people with a wealth of experience.
This is a people business, and whether it's on the wealth management side or on the investment banking side or on the trading side, in the end the main asset is the people. And so making sure that you're paying attention to people, making sure that you're sensitive to the culture, making sure that the organization is working together as a team is critical to long-term success.
How would you change the wealth management business?
I'm not at all sure that I want to change it. I first have to learn about it. It is the leading wealth management franchise in the world. So I'm not sure it needs to be changed.
Would you like to see Merrill get bigger? Would you like to see acquisitions globally?
Not necessarily. Goldman—[I mean,] Merrill is already a global franchise. And it has, as I said before, probably the world-class position in wealth management. It's got a great position in investment banking and in sales and trading. It's got a good private equity business. So I don't think it necessarily needs to do any particular acquisitions. I think right at the moment we'll focus on just developing the businesses we have.
How will you manage Merrill's sprawling empire of brokers, a task O'Neal never really mastered?
I'm not sure that a sprawling network of brokers is necessarily any more difficult to manage than a sprawling network of investment bankers or salesmen traders. Merrill is a global franchise. It has financial advisers as opposed to brokers, and so we should amend the way you asked the question. In the end, it really comes down to the people, the culture, and the communication systems.
Some might say Merrill has had a lot of failed attempts at investment banking, but would you expand that area?
I don't agree with the way you've asked the question. I don't think investment banking had failed attempts. I think Merrill is a very strong competitor in the investment banking space.
You oversaw mortgages at Goldman, but some might say you do not have the fixed-income experience. Is that an issue, and how will you solve Merrill's subprime woes?
I ran mortgages for five years [at Goldman]. I was inside the fixed-income area for that period of time. And then when I was the CFO, all of the risk areas reported to me. So I was on the risk-taking side for five years, and then I was on the risk-management side for another five years. I don't think there's any issue with my knowledge or expertise in the fixed-income areas.
You have said that on an industrywide level, there's more pain to come.
That's correct. I believe, particularly in the CDO market and in the subprime mortgage market, there is going to continue to be downward pressure on prices. I think that it will take probably 6 to 12 months for these problems to be totally worked out.