Merrill Ousts CEO O'Neal, Begins Seeking Successor
Merrill Lynch ousted Chairman and Chief Executive Stan O'Neal just days after reporting the biggest quarterly loss in the company's history, making him the highest-ranking casualty in
the U.S. subprime mortgage crisis.
The world's biggest brokerage said board member Alberto Cribiore will serve as interim nonexecutive chairman while day-to-day operations will be overseen by Merrill's current
co-presidents, Ahmass Fakahany and Greg Fleming.
Cribiore, founder of private equity firm Brera Capital, will chair a search committee to find a permanent successor to O'Neal. The committee will look inside and outside the company, Merrill said in a statement.
"I think it's the best solution at the moment, because my belief was it would be a big mistake to immediately name a new CEO before the company has figured out what its strategy should be," Dick Bove, an analyst at Punk Ziegel, told "Squawk on the Street."
"What you now have is three or four months for Merrill Lynch to go back (and) redevelop a serious strategy," Bove said.
Fleming's duties include oversight of company risk management, a task previously associated with Fakahany, who the company said will lead global support, finance and human
resource functions.
Shares Fall in Reaction
Merrill shares dropped over 4% as investors may have been disappointed that a permanent replacement was not named.
Merrill still faces critical challenges because it remains exposed to $20.9 billion in subprime mortgages and collateralized debt obligations.
Some analysts estimate the company might have to write down those assets anywhere from $4 billion to $5 billion further.
Speculation that O'Neal would be ousted mounted after the company last week reported a $2.3 billion loss for the third quarter, mostly because of bad bets on securities tied to risky subprime loans. The loss was several times bigger than what O'Neal forecast earlier this month.
"It's no big surprise. Merrill Lynch had a huge misstep in risk management, and someone needed to pay the price," said David Killian, portfolio manager of StoneRidge Investment Partners LLC. "The company totally lost its way in risk management."
Last week, O'Neal admitted on a conference call he misjudged the company's exposure to risky subprime loans.
O'Neal, the first African-American to run a major Wall Street company, also hurt his cause when he floated a merger with U.S. bank Wachovia without the board's knowledge, the New York Times reported last week.
Became CEO in 2002
O'Neal, 56, became CEO of Merrill Lynch in December 2002, and since then Merrill Lynch's shares have risen about 53 percent, compared with a 160 percent increase for the Amex
Securities Broker-Dealer index.
The company said in its statement Tuesday that O'Neal and the board had agreed that a change in leadership would best enable Merrill Lynch to move forward. The company described his departure as a retirement after 21 years of company service.
"The company has provided me with opportunities that I never imagined growing up," O'Neal said in the statement.
O'Neal was raised in segregated rural Alabama. Years later he told an interviewer he was not born in his hometown's hospital because it did not serve African-American families.
Bill Andrews, an analyst at money manager C.S. McKee, a Merrill shareholder, said O'Neal accomplished a lot of good at Merrill.
He pushed the company into new businesses and expanded Merrill's presence overseas, Andrews said. Before the third-quarter meltdown, profit at Merrill had quintupled under his leadership.
"I don't think his tenure was an abject failure," Andrews said. "But Stan doesn't like a lot of debate. People who don't agree with him, no matter how talented they are, weren't around
long. That's his Achilles' heel."
O'Neal's Compensation
Merrill said the value of O'Neal's retained stock awards and benefits are worth $161.5
million, accumulated over 21 years of service.
O'Neal will not receive a severance package, but the company will provide him an office and an
executive assistant for up to three years, Merrill said.
The breakdown of O'Neal's holdings include $131.4 million for unvested restricted stock and restricted stock units and the in-the-money value of unexercised stock options. There is
also $24.7 million for the value of an annuity agreement, 401(k) balances and a retirement plan. His deferred compensation is worth $5.4 million.
The unvested restricted stock and restricted stock units will continue to vest in accordance with their original schedules, and the in-the-money unexercised stock options will continue to be outstanding after retirement, subject to compliance with covenants, Merrill said.
-- Wire services contributed to this report