Stan O'Neal, the CEO of Merrill Lynch, is being forced to leave the firm, the Wall Street Journal reported Sunday. Last week, the firm disclosed an $8.4 billion writedown for Q3, far worse than the $5 billion it warned of three weeks prior -- a "sickening" loss, in the words of former Merrill CEO Daniel Tully (full story). Merrill's stock price, which has dropped by about a quarter since the magnitude of the losses began to come out in early October, rebounded 8.5% to $66.09 Friday on rumors of O'Neal's pending resignation. No successor has been named, but contenders include BlackRock CEO Laurence Fink, Merrill co-president Greg Fleming, NYSE Euronext CEO John Thain, and Bob McCann, who runs Merrill's brokerage division. At O'Neal's urging, Merrill had accumulated a CDO inventory of $32.1 billion and a subprime mortgage security inventory of $8.8 billion. Those stockpiles generated the massive losses disclosed last Wednesday. O'Neal, who is known for a unilateral, take-no-prisoners managerial approach, had not adequately communicated the reasons for the catastrophic writedown to the board, according to an unnamed source. The "final straw" came when O'Neal asked Wachovia CEO G. Kennedy Thompson -- without prior consultation with the board -- whether Wachovia would consider buying Merrill (full story). Despite the turmoil in the executive suite and the impact of the credit crunch, the firm is expected to survive, thanks to its $70 billion in cash and salable securities. "[T]here could be a disruptive change in strategic direction or more write-offs, all occurring when the credit markets remain unsettled," said Scott Sprinzen, an MD at Standard & Poor's. "But Merrill Lynch's liquidity is very strong, so that is not a great concern we have right now."
Commentary: Merrill CEO Discussed Merger with Wachovia, Angering Board - NY Times • Merrill CEO Approaches Wachovia Without Board Approval; Grounds For Dismissal? • Who Will Rescue Merrill?
Stocks to watch: MER. Competitors: GS, MS. ETFs: IAI, KCE, IYG
Earnings call transcript: Merrill Lynch Q3 2007