On the Ropes at Merrill Lynch

By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, October 30, 2007

NEW YORK, Oct. 29 -- The journey of E. Stanley O'Neal from a farm in Alabama to the top of the food chain on Wall Street was an uncommon rise that culminated in an all-too-familiar fall.

The grandson of slaves, the child of farmers and a former assembly-line worker at an auto plant, O'Neal forged an unlikely path to Harvard Business School and then to some of the nation's largest companies before taking over as chief executive at Merrill Lynch in 2002.

But amid widespread indications Monday that the company's board was pressuring O'Neal to resign, some who know him said his unusual ascent came to an abrupt halt because of the same mix of hubris, corporate infighting and an abysmal bottom-line performance that has done in more than one executive.

Even before Merrill announced a headline-making quarterly loss last week after writing down $7.9 billion in mortgage-related securities, O'Neal had been a controversial chief executive. He was a relentless cost-cutter who showed results but who outraged some old-timers by changing the company's internal culture.

O'Neal, 56, the first African American to take the helm of a major Wall Street firm, would be the highest-ranking casualty from the summer's credit market turmoil.

"It is a tragic Shakespearean story," said Jeffrey Sonnenfeld, a management professor at Yale University. "He really had spectacular results coming in. The guy's brilliant."

At the same time, Sonnenfeld said, "he didn't make friends, and he also apparently didn't listen to those who understood credit risk better than he did."

Though no official word on O'Neal's departure was given Monday, there was little doubt in the financial world that he would be replaced, with analysts speaking of his reign in the past tense. O'Neal has been under the gun since Merrill three weeks ago said it expected to take write-downs of $4.5 billion from mortgage-related securities, raising questions about the firm's risk management practices. Last week, O'Neal acknowledged that the write-downs were closer to $7.9 billion, further damaging his credibility with Wall Street. The firm's loss was most severe among its peers and the largest in Merrill's 93-year history.

Merrill's shares are down by a third this year, fueling speculation of a takeover. The shares rallied Friday after it became public that O'Neal had approached Wachovia about a merger, but the overture added to O'Neal's vulnerability. According to a New York Times report, O'Neal broke protocol by not seeking permission from his board to approach Wachovia.

"He's lost the confidence of the board," said Michael Kelly, managing partner of the Board Services Practice at CTPartners, an executive search firm. "No one likes surprises. That's sort of the moral of the story."

Wachovia reportedly is not interested in the deal. A spokeswoman declined to comment. Merrill's stock closed Monday at $67.42, up 2 percent.

The firm is expected to look both inside and outside the company for O'Neal's successor. Names that have been floated include Laurence Fink, chairman and chief executive of BlackRock, the successful asset manager in which Merrill has a 49.8 percent stake; John Thain, chief executive of the New York Stock Exchange and former co-president of Goldman Sachs; Gregory Fleming, Merrill's co-president; and Robert J. McCann, who heads Merrill's brokerage operation. Representatives of BlackRock and the New York Stock Exchange declined to comment. Merrill Lynch and its executives also declined to speak or return phone calls.

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