NEW YORK — Merrill Lynch & Co. Chief Executive Stan O'Neal has decided to leave the firm, according to a person familiar with the matter.
An announcement on his departure could come Monday morning, this person said.
The board is still working on the details of O'Neal's departure, including ironing out the details of his separation package and replacement scenarios, this person said.
Those in the running for O'Neal's job include Laurence Fink, chief executive of money manager BlackRock Inc. and Gregory Fleming, Merrill's co-president. There could also be some power-sharing arrangement involving the two men, or a temporary solution to give the board more time to find a permanent replacement. Bob McCann, head of Merrill's huge brokerage arm, is also considered a candidate for a top job, according to Wall Street executives.
A Merrill spokeswoman declined to comment.
Discussions about O'Neal's fate have followed in the wake of this past week's $8.4 billion in write-downs and an unauthorized overture to Wachovia Corp., people familiar with the matter said.
Directors have grown increasingly frustrated since Merrill announced $5 billion in write-downs three weeks ago. In the past week, the size of the hit grew by more than $3 billion, and Merrill reported a $2.24 billion net loss for the third quarter. Analysts say several billion dollars in additional write-downs may be in store.
The latest developments came after news O'Neal had approached Wachovia Chief Executive G. Kennedy Thompson in the past week about whether the Charlotte, N.C., bank would be interested in a combination with Merrill. O'Neal didn't consult with the board before making the phone call. Thompson, who has said he is focused on integrating two recent acquisitions, said the timing wasn't right for a deal, people familiar with the matter said.
Fink and O'Neal had dinner together Thursday night, people familiar with the matter said, fueling speculation of a management change. A Merrill spokeswoman declined to comment.
The discussions between Merrill and Wachovia were reported in the New York Times.
At a company-wide meeting to discuss the write-downs, someone asked O'Neal if he had considered a merger, and he said no, according to people who heard his remarks.
If Merrill were sold and O'Neal departed, he could stand to make roughly $200 million in severance payments and accelerated payout of previous stock awards, according to the company's proxy. That's more than he would receive if he resigned or were forced out.
Merrill's stock price surged $5.19, or 8.5%, to $66.09 a share Friday on reports that O'Neal might be on his way out and on speculation the firm could be acquired.
Another person mentioned as a candidate for Merrill's top job is New York Stock Exchange chief John Thain. He has plentiful Wall Street experience as the former co-president of Goldman Sachs.
Most of Merrill's directors have arrived since O'Neal took over as CEO in 2002 and several have longtime ties to him. However, some directors have been griping about the losses and agitating for change. A handful of Merrill alumni have also been considering a movement to get O'Neal pushed out.
Some of the most pointed questions at a previous Merrill board meeting, at which O'Neal discussed the third-quarter write-downs, were asked by Armando M. Codina, the chief executive of Flagler Development Group in Jacksonville, Fla., according to a person familiar with the meeting. Codina, a director since 2005, chairs the board's nominating and corporate-governance committee.
O'Neal, 56 years old, is the first African-American to head a major Wall Street brokerage firm. The Alabama native earned a Harvard M.B.A. and was working in finance at General Motors Corp. when he was recruited to join Merrill's investment bank in 1986. By 1998, O'Neal was chief financial officer.
The firm O'Neal inherited earned $1.7 billion less than rival Morgan Stanley on almost exactly the same revenue. Those were the figures for 2000, the year before the Merrill board picked O'Neal as president and he effectively began running the show.
Most of his predecessors as CEO had been outgoing former stockbrokers who favored expansion as the way to profits. O'Neal refocused Merrill, cutting costs and focusing on high-profit areas. One of those areas was the business of bundling home loans into securities, the area that later played a big role in the write-downs.
At times O'Neal has been reluctant to share power. Until May, he held all three top jobs at the firm as chairman, chief executive and president. He is not afraid to fire those around him who he doesn't feel are up to snuff. In July 2003, six months after becoming CEO, he ousted two top executives, including his then-No. 2, Thomas Patrick, who had helped engineer O'Neal's ascent as CEO. That came after Patrick objected to the firing of another executive, Arshad Zakaria, who was campaigning to become the firm's president. In the wake of the recent losses, senior executives in Merrill's bond department were shown the door.
O'Neal has had his share of successes, including the deal in 2006 that gave Merrill a 49% stake in BlackRock in exchange for Merrill's asset-management business.
But that deal is coming back to haunt O'Neal as BlackRock's Fink appears to be in the running to be the next Merrill CEO. The week before Merrill reported its $8.4 billion write-down, BlackRock beat analysts' earnings estimates and reported $40 billion in new inflows as investors turned to the firm to manage their cash following the summer's volatile markets. On Thursday, Goldman Sachs Group Inc. upgraded BlackRock stock to a buy from a neutral rating, noting "the visionary leadership" of Fink.
Hanging on the wall outside Fink's office at BlackRock is a framed menu bearing his signature and that of O'Neal. The menu is from the Three Guys Restaurant, a Manhattan diner where in January 2006 the pair met to discuss the deal between Merrill and BlackRock. Fink helped found BlackRock and built it into one of the world's largest money managers with $1.3 trillion in assets.
If the 54-year-old Fink lands the Merrill job, it would close another circle. In March 1988, Fink left First Boston Inc. after the mortgage-backed securities group he oversaw suffered huge losses. The experience helped shape Fink's strategy at BlackRock, which stresses risk controls in managing money. The firm has largely dodged the bloodletting that started this summer in the mortgage-backed securities market, as well as turbulence elsewhere in the stock and bond markets.
Fink is "very, very concerned about the risk-management side of the business and I think that's been a hallmark of BlackRock," says Morningstar analyst Rachel Barnard.
Over the past year, BlackRock's risk models began waving red flags about lending standards and the potential for rising defaults in the mortgage market, even as ratings agencies were still giving many mortgage-backed securities top scores for safety, says BlackRock President Robert Kapito. BlackRock began pulling back from riskier parts of the mortgage market. "It can be painful when the competition is showing higher yields," says Kapito.
Fink's risk-management abilities could help him at Merrill, but he doesn't have recent experience within a major brokerage firm. Merrill's core is its army of 16,000 brokers, who rank No. 1 in revenue per broker. Fink also lacks experience managing a trillion-dollar balance sheet, which proved perilous for O'Neal.
If Fleming were to take charge with Fink, it would help placate Merrill's investment bankers and possibly the brokers, who might resent an outsider taking over a firm that prides itself on its home-grown talent. Fleming began as an investment banker doing deals for financial companies. He advised Wachovia's Thompson on predecessor First Union Corp.'s $14.5 billion acquisition of Wachovia.
The head of Merrill's brokerage force, McCann, is also likely to figure in the new management mix because the business he leads has been successful and wasn't part of the write-down problem. Although McCann once led the firm's research and global stock-markets division, he doesn't have Fink's deep bond-market experience.
