Subprime Claims Merrill CEOs Job

Date: Tuesday, October 30, 2007
Author: HFN Daily Report

It's all over but the shouting, according to news reports. Merrill Lynch's Chief Executive Officer Stan O'Neal is wrapping up negotiations over his severance package after the bank posted a third-quarter loss of $2.24 billion following a $8.4 billion writedown for subprime investments.

Overall, the bank said last week it was taking a $2.24 billion loss in its third quarter.

Merrill's board and investors were left to wonder why they hadn't been apprised of the full extent of losses sooner. At the beginning of the month, O'Neal said that the bank would likely have to take a $5.5 billion writedown.

O'Neal took Merrill international from its stronghold as a U.S. brokerage firm.

But he also moved the company into more risky positions by upping its exposure to collateralized debt obligations, many of them linked to subprime mortgages. Merrill also bought subprime lender First Franklin for $1.3 billion in December, when problems in that sector were beginning to surface.

The final straw for Merrill's board may have been press reports that O'Neal was in talks with Wachovia about a possible merger.

Laurence Fink, the chief executive officer of asset manager BlackRock, in which Merrill owns a 49.8% strake, has been named as a possible replacement. Merrill Co-President Gregory Fleming and Robert McCann, who heads up the bank's brokerage division, are also viewed as being on-deck in the succession contest, according to news reports.

O'Neal is guaranteed a severance package of about $159 million, according to The New York Times.

A call to Merrill Lynch requesting comment was not returned