Merrill Investors Wait for Word on O'Neal
By the Associated Press and BW Staff
The stock of Merrill Lynch (MER) rose 2% on Oct. 29 and closed at about $67.50, as investors waited for word on the status of Stanley O'Neal, the company's embattled chief executive. The company's board has issued no statement on O'Neal or a possible successor as of the market's close.
Over the weekend, there were reports that O'Neal was close to resigning amid broad criticism for leading the world's largest brokerage to its biggest quarterly loss since it was founded 93 years ago.
Dismissal Is Imminent
In a week that included a $7.9 billion write-down related to subprime mortgages and O'Neal's unauthorized overture to sell the company to retail bank Wachovia (WB), the board of Merrill Lynch reached a broad consensus on Oct. 26 for his dismissal, according to several media reports. He would become the highest-ranking casualty of the global credit crisis that swept through Wall Street's biggest investment banks during the third quarter.
An announcement of his departure could come at any time. The Wall Street Journal and The New York Times both reported that the move could come as early as the morning of Oct. 29. A Merrill Lynch spokesman declined to comment.
Merrill's 11-member board, which currently includes O'Neal as chairman, was expected to initiate a search to find a replacement that will include both internal and external candidates.
O'Neal, 56, came under fire Oct. 24 when Merrill Lynch announced a $2.24 billion loss as big bets on mortgage-backed securities were rendered almost worthless because of a global credit squeeze. His fate was also plunged into doubt after he initiated talks about a possible merger with Wachovia, according to the Times. Such a deal could have handed O'Neal a $250 million separation package if he wasn't chosen to lead the new company.
O'Neal, who rose to power five years ago, was known for shaking up top management and putting a greater emphasis on riskier bets rather than the safety of just selling stocks. That strategy—which handed Merrill Lynch record results during the market's peak— came with a heavy cost during the tumultuous third quarter. The company said Oct. 24 it didn't know what impact it would have in the current earnings period.
O'Neal shouldered the blame for the earnings miss. "I'm not going to talk around the fact that there were some mistakes that were made," he said in a conference call with analysts on Oct. 24. Merrill Lynch shares plunged for two days, then spiked on Oct. 26 amid speculation O'Neal might be forced out.
Investors, who have seen Merrill's shares slump by 30% this year, will now be keenly interested in who might take control. Widely tipped as a successor is Laurence Fink, currently chairman and CEO of asset manager BlackRock (BLK). He's credited with being one of Wall Street's most powerful players in the fixed-income market, which has been slammed by a global aversion to risk as mortgage-backed securities lost significant value during the summer.
Fink had dinner with O'Neal on Oct. 25 but has yet to meet with Merrill's board, according to a person familiar with the matter who was unauthorized to speak on the record. Merrill Lynch owns a 49% stake in BlackRock.
Internally, Gregory Fleming, Merrill's co-president, has been named as a possible replacement, as has Bob McCann, who heads Merrill's brokerage division.
There was also speculation that Fink, Fleming, and McCann might enter into some power-sharing arrangement until the board can find a permanent replacement.