Merrill Lynch CEO Stan O'Neal approached Wachovia Corp. early this week to discuss a possible merger without first obtaining board approval, angering some members to the point that they considered replacing him, the New York Times reported Friday. Unnamed sources say, based on the board's reaction, that a merger is unlikely "for now." Merrill's board was so upset it discussed names of potential replacements, including Laurence D. Fink, CEO of investment firm BlackRock partly owned by Merrill, and NYSE CEO John A. Thain. On Wednesday Merrill reported a Q3 loss of $2.3 billion and said it would take a write-down of $7.9 billion on CDOs and subprime mortgages, far worse than the $4.5 billion it pre-announced on Oct. 5 (full story). The fact that O'Neal made contact with Wachovia, the Times says, underscores how much the subprime mortgage crisis has roiled the Wall Street investment bank. Wachovia has market cap of about $86 billion, versus Merrill's $52 billion, while Merrill is considered the more prominent of the two. Wachovia became the number-two retail brokerage firm after acquiring A. G. Edwards. Recent market turmoil has hit Merrill much worse than Wachovia; Merrill shares trade at $60.90/share from a 52-week high of over $98. A merger between Merrill, with 15,000 retail brokers, and Wachovia, with 10,137, would likely face antitrust questions, and may not be received well by Merrill’s brokers, the Times said.
Commentary: While Merrill was Writing Down $8 Billion, Stan O'Neal Was Playing Golf • Merrill's Problems Make Even Citi Look Good • The End of the Merrill Myth
Stocks to watch: MER, WB
Earnings call transcript: Merrill Lynch Q3 2007, Wachovia Q3 2007
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