Rumors are flying that Stanley O’Neal is being forced to step down after a disastrous third quarter— making him the most prominent casualty of the subprime meltdown.
The CEO met with the board over the weekend to decide who should replace him, according to the New York Times.
Truly heinous third quarter results, too large an exposure to risky subprime investments, and reports of an “unauthorized merger approach” to rival Wachovia are thought to have lead to O’Neal’s undoing.
Forbes is reporting that O’Neal stood to personally gain $250 million if Merrill Lynch was sold to Wachovia, a shady move that may have sealed his fate.
MSNBC details the rise and fall of Mr. O’Neal:
After being appointed president in 2001, Mr O’Neal pushed through a drastic restructuring of the company that saw the loss of 24,000 jobs. Many who criticised the moves at the time subsequently admitted that a shake-up was needed at the bank, which had become flabby and complacent.
But some argued he was taking the heart of “Mother Merrill” and warned that his subsequent moves to put more of the group’s capital at risk would end in tears. This weekend they were claiming vindication.
One business Mr O’Neal allowed to expand rapidly was the buying and packaging of residential mortgages into securities, then sold to investors.
This business made handsome profits until this year when subprime mortgage borrowers started defaulting on payments. The value of the securities that Merrill had retained on its books plummeted and last week it admitted it had written down their value by almost $8bn. That might have been enough to end Mr O’Neal’s Merrill career. But further pain is likely. Analysts estimate the continued deterioration in the market has left Merrill sitting on additional losses of more than $4bn.
Executives at rival Wall Street banks say Merrill is also likely to be faced with legal actions from clients to whom it sold securities. “The struggles they are going to go through over the next two years are going to be horrible,” said one senior Wall Street figure.
Sounds like Merrill Lynch is going to be a fun place to work for the next few years.
Risk-Taker’s Reign at Merrill Ends With Swift Fall [NYT] (Thanks, Brent!)
Subprime crisis seals O’Neal’s fate at Merrill [MSNBC]
Merrill Lynch Set To Oust O’Neal [Forbes]
Merrill’s O’Neal stood to gain $250 million from a change in control: CIBC [Forbes]