The annual talent flight that follows bonus season on Wall Street is causing a shake-up in Merrill Lynch & Co.'s corporate finance unit.

At least five top investment bankers and capital markets executives have left the company since bonuses were paid at the end of January, including three resignations last week.

Gone are high-ranking specialists in three key businesses - leveraged buyout coverage, which cultivates coveted relationships with LBO firms or financial sponsors; leveraged finance, which underwrites and trades debt for below-investment-grade companies; and mergers and acquisitions advisory.

Among the most recent to leave is David Webb, a managing director and head of Merrill's LBO sponsor coverage group. Mr. Webb resigned last week to join Brera Capital Partners, a New York buyout firm.

Mr. Webb, an 18-year Merrill veteran, was viewed by many as Merrill's point man for drumming up customers for the firm's M&A advisory, capital markets, and syndicated lending businesses.

On its own, the LBO group Mr. Webb led since 1991 was responsible for 15% of Merrill's $3.2 billion in investment banking revenues last year, a company source said.

Merrill executives concede the resignations have cost the firm some talent. But they also see the departures as an opportunity for a new organizational structure in which the firm can integrate its corporate finance team.

"The talent in these businesses runs very deep," a Merrill spokesman said. "We continue to have one of the strongest leadership teams on the Street."

For now, Mr. Webb's responsibilities will fall to Mark Maybell, a managing director for global communications, financial sponsors, and private equity.

Mr. Webb "put together such a deep team here and was the key on three to four big accounts," Mr. Maybell said. "It's clearly a loss."

As for finding a permanent replacement, "we're trying to figure that out," Mr. Maybell said, adding that he did not expect it to be a challenge because of the depth of talent in the group.

Merrill must also fill the void left by Robert J. Woolway, who headed Merrill Lynch's LBO sponsor group on the West Coast. He resigned last week to join J.P. Morgan & Co. in Los Angeles.

One certainty, according to Mr. Maybell, is that more responsibility in the LBO group will fall to Harry Crosby and Eugene Miao, two high-profile leveraged buyout specialists hired a year ago from Credit Suisse First Boston and Morgan Stanley Dean Witter, respectively.

The departures of Mr. Webb and Mr. Woolway followed that of Merrill's head of global leveraged debt, Thomas Gahan, who took a similar position in January with Deutsche Bank.

It was Mr. Gahan, an 11-year veteran at the firm, who was credited with building Merrill into a power in the leveraged debt business. But he was also viewed as partly responsible for the firm's 31% decline in trading revenues in 1998.

"Tommy lost a lot of money for the firm," said a high-ranking executive at Merrill. "He wasn't pushed out, but people were less in love with him after last year."

Most of Mr. Gahan's duties have been passed on to Keith Horn, head of leveraged trading. Mr. Horn will report to G. Kelly Martin, a managing director for global debt markets.

Some Merrill sources said the loss of such key personnel has come as a blow to the firm's leveraged finance team, including Merrill's global loan syndication group.

"It's created a vacuum at the top," said a source at the firm. "It's by no means a death knell, but it's led to more turmoil."

On the other hand, according to Mr. Maybell, the departures allow Merrill to shake up the leveraged finance group and get top managers working more closely.

Mr. Gahan's departure is "an opportunity to integrate" the debt business, Mr. Maybell said, adding that "if we can increase our market share from the LBO group, we want to do it."

In essence, the leveraged finance group is expected to generate and coordinate more crossover business from existing clients, Mr. Maybell said.

To that end, Merrill has replaced Mr. Gahan with a four-member operating committee: Mr. Horn; Chris Johnson, head of high-yield bond underwriting; John F. Yang, head of loan syndications; and Rich Byrne, head of high-yield research.

Some at the firm also hope the integration will fuel syndicated lending- the only leveraged finance business in which Merrill has not achieved bulge-bracket status.

Of all the investment banks that entered syndicated lending in the mid- 1990s, it was Merrill that was seen as having a real chance to loosen the tight grip of big commercial banks on that business. After all, Merrill was backed with a strong balance sheet and a lineup of free-agent syndicated lending stars led by Mr. Yang, a former Chemical Banking Corp. executive.

But in many ways, Merrill's team has disappointed. In 1998 the biggest year for all investment banks in syndicated lending, Merrill finished 21st behind smaller competitors such as Lehman Brothers, Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Inc.

Some former Merrill bankers say senior management has been reluctant to commit money to lending. That has led to a deal flow "that isn't competitive," one said.

But one current Merrill banker said the company is focusing on quality, high-return loans rather than volume. Revenues topped $100 million on the $6.6 billion in loans the firm led last year, according to one source.

"There are practical constraints on how the business is run," said one Merrill executive. "A lot of people flame out in this business. ... Last year our business doubled. We're not making mistakes."

But by working more closely with the people running Merrill's bigger business lines, there is optimism the business will blossom. Another reason: Mr. Yang has been named co-head of global leveraged finance origination with Mr. Johnson.

Already, a source at the firm said the loan group has managed or has commitments for more than $5 billion in new loans in 1999-just $1 billion shy of the firm's total for 1998.

"If the biggest complaint is that we're not out in the market enough," said a senior Merrill banker, the company will "step up to that."

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