Subprime Mortgage Crisis 2, Financial-Service CEOs 0

"I was surprised at the slowness in grasping the magnitude of the response on the part of management [at Merrill]," says Roame, who doesn't believe the Wachovia issue was critical in O'Neal's departure. "The size of the problem [i.e., the loss] roughly was nearly double what was predicted," and that was quite a shock to the board.

"Second, I was surprised at the rashness of what appears to be a 'firing.' [O'Neal] was the poster boy a couple years ago," says Roame. "He may have made one mistake, but he did a lot of good things."

O'Neal reportedly will receive a severance package worth about $160 million. "This is an enormous amount of money," shares Roame. And it points to the mixed messages that O'Neal's exit represents. "If you think someone did such a horrible job, then you don't give 'big bucks' to them on the way out the door."

The former CEO led efforts to reduce the cost of running the business at Merrill by $6 billion, re-orient the firm, improve earnings and produce $7.5 billion in net profits in 2006, shares Bove. O'Neal became chief executive officer in December 2002 after joining the company 21 years ago.

"This was not a bad job," Bove says. "The firm is stronger today than it was when he took over …" Still, O'Neal failed to institute the proper controls over some market activities and never developed the constituency necessary to maintain power, while firing some 26,000 people, adds Bove.

Along with Fink, there was some discussion about a Merrill insider replacing O'Neal: Bob McCann, head of the brokerage operations, or Merrill Co-President Gregory Fleming.

Historically, Merrill has promoted brokers and those in the brokerage-focused business to lead the firm until recently, Roame points out. "So anyone who hasn't come up through this channel is going to be seen 'as not one of us, not from our team.' " O'Neal's managerial style may have made it hard for advisors to relate to, since it was " top down rather than more walking around, getting to know you," he adds.

"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.

"The advisors generating 81 percent of our [private-client] revenues have been with us an average of 11 years. And our top 25 producers have been with our company about 25 years on average," McCann shared. "So people build long careers here as advisors."

Like O'Neal, McCann has worked at Merrill for more than 20 years. He did leave Merrill for several months in 2003 to join AXA Financial, only to return at O'Neal's request. "Merrill has historically always been run by its sales force," says Bove.

In a sharp contrast with the battle at Morgan Stanley to push out former CEO Philip Purcell, which was a protracted one, the move to oust O'Neal was "too strong, too fast," says Bove. Purcell was forced out of his role as head of Morgan Stanley in June 2005. He left after the exodus of many executives and other employees over a 15-month period and after some dissident shareholders and ex-Morgan staff had called for his firing. He was replaced by John Mack.

Merrill's 64,200 employees and executives want change at the top, for a variety of reasons. And how much of a shift is in store at Merrill remains to be seen, cautions Bove, who believes that Merrill must change its "short-term orientation to issues."

"It is time for Merrill to refine its strategy and make it flexible enough to handle the normal cyclicality of its business. Hopefully, this is what a low-profile, detail-oriented CEO with a strong capital markets background will do."

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As for Citi, it's "doing what investors want by changing leadership, taking what appears to be a clean-up write-off, and committing itself to the maintenance of the dividend," Bove explains. "Speculation will develop that Citigroup will be split up. That is not likely to happen."

Others concur. "There's no evidence that there's a lack of synergies" in Citi's business units, says Roame. "The problem seems to be that some seriously talented people were pushed out during Prince's leadership." Advisors and investors alike are ready for some new blood.

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Janet Levaux is managing editor or Research and can be reached at [email protected].