Merrill Lynch says it hired former NYSE Euronext CEO John Thain to replace the brokerage firm's ex-CEO and chairman, Stan O'Neal, who "retired" on October 30, six days after the firm announced a write-down of some $8 billion due to its mortgage-related holdings. That amount represents about one-eighth of Merrill's total value at the end of the third quarter.
"John will be adept at balancing the focus on risk management and controls while taking the steps necessary to ensure the company evolves and grows," says Alberto Cribiore, Merrill Lynch's interim non-executive chairman and chairman of the company's search committee. "He understands both the company's challenges, and as his track record shows, he appreciates the value associated with the Merrill global brand. We are delighted to welcome him aboard."
Thain, whose hiring was announced November 14, is set to begin work at Merrill on December 1. He joined the NYSE in January 2004, after serving as president and chief operating officer of Goldman Sachs Group since July 2003 and president and co-chief operating officer from May 1999 through June 2003. From 1994 to 1999, he occupied several different posts with Goldman.
Reports had circulated in early November that BlackRock CEO Larry Fink was being considered for the top post at Merrill.
"This is a big plus for the company, since Mr. Thain appears to have the necessary characteristics to solve the company's key problem, which is the risk-management business," says Richard Bove of Punk, Ziegel & Company in a note.
Bove adds, though, that Thain has a reputation of being "a cerebral and austere manager, similar to Mr. O'Neal. "This style of management does not work at Merrill as Mr. O'Neal discovered. This company is still, first and foremost, a retail sales organization with 16,000 sales people."
Merrill's mortgage-related write-down surpasses what the company had predicted, though it was "partially offset" by the results of global wealth management, or GWM, and other units, the company says. For the third quarter, the company had a pre-tax loss of $3.5 billion.
On and after October 26, the media focused on reports of O'Neal talking with Wachovia about a possible deal, which may have included the idea of a merger or takeover. This may have played a role in the board's discussions about and with O'Neal about leaving.
He reportedly received a severance package worth about $160 million. It's worth remembering that O'Neal reduced the cost of running the business at Merrill by $6 billion, re-oriented the firm, improved earnings and helped the company produce $7.5 billion in net profits in 2006, shares Bove.
"This was not a bad job," says the analyst. "The firm is stronger today than it was when he took over …" Still, O'Neal failed at instituted the proper controls over some market activities and never developed the constituency necessary to maintain power, while firing some 26,000 people, adds Bove.
Who else was on the short list of possible O'Neal replacements? Bob McCann, head of the brokerage operations, as well as Merrill Co-President Gregory Fleming. .
O'Neal was chief executive officer since December 2002 and joined the company 21 years ago, the company says.
"Private client is 35 percent of the revenues of Merrill Lynch," McCann told Research in July. "We have relevance within our own company. In our very roots as a company, we've always been in the private-client business, and we always will be. It has significance as being both the biggest in the industry and being a significant part of our company.
