Shares of Merrill Lynch rose as much as 3% Monday as investors bet the biggest U.S. brokerage wouldn't keep investors waiting too long before announcing a replacement for Stan O'Neal, who presided over the biggest quarterly loss in the firm's 93-year history.
O'Neal's tenure as chief executive and chairman is at risk after an $8.4 billion write-down for the third quarter, mostly because of bad bets on securities tied to subprime loans.
Merrill shares were up 2.41 percent in afternoon trading, adding to a gain of about 8.5 percent on Friday after news reports that O'Neal would be replaced.
"Speculation has been that the BlackRock CEO Laurence Fink would take over, and that is being viewed favourably," said Todd Clark, director of stock trading at Nollenberger Capital
Partners in San Francisco.
"Supposedly, because he has strong roots in fixed income he understands the risk more than current management and will be able to get a quick handle on the problems," Clark said.
Investors in BlackRock were less enthused.
"The decline is primarily reflecting the rumors around Larry Fink, as it relates to him possibly transitioning to Merrill," said Michael Kim, an analyst at Sandler O'Neill. Kim said Fink, who is also BlackRock's chairman, is the "driving force" behind the firm.
Merrill owns a 49 percent stake in BlackRock.
Besides Fink, Robert McCann, who oversees Merrill's 16,600 brokers, is also considered a candidate.
Merrill's star investment banker, Greg Fleming, may also have an important role in a new regime, according to people familiar with the situation.
If Merrill does oust O'Neal, his company holdings, retirement benefits and severance package would easily top $200 million, regulatory filings show.
O'Neal, 56, the first African-American to run a major Wall Street firm, shocked Wall Street on Oct. 5 when he said the company would take $5.5 billion in write-downs and post a quarterly loss, its first in six years.
But what really shook investor confidence in O'Neal, named CEO in 2002, was that the write-down figure had mushroomed by nearly $3 billion by the time the company officially reported
results last week.
O'Neal was also reported to have annoyed board members by directing Fleming, without consulting the board, to contact No.4 U.S. bank Wachovia Corp (WB.N) about a potential merger with Merrill.
While a Wachovia deal looks unlikely, analysts at Deutsche Bank said Sunday that the possibility of a takeover "while still unlikely, needs to be considered..."
In the absence of a takeover, Merrill Lynch says it does not have severance agreements with senior executives.
For O'Neal, any severance package would come at the discretion of the board's compensation committee, which includes two directors who have been strong allies.
The chairman of Merrill's five-member compensation committee is Chubb Corp CEO John Finnegan, a former O'Neal colleague from their days at General Motors.
Alberto Cribiore, founder of private equity firm Brera Capital Partners, also is on the committee and has been a strong supporter of O'Neal, according to people familiar with their relationship.