From the January 2008 issue of Research Magazine • Subscribe!

January 1, 2008

Thain Tapped as Merrill's New CEO

Merrill Lynch is now led by John A. Thain, 52, the former chief executive officer, director and member of the management committeee of NYSE Euronext and ex-president and chief operating officer of Goldman Sachs Group. He started his new post as chairman and CEO on December 1 and was joined on December 10 by former NYSE Euronext CFO Nelson Chai, 42. Thain's hiring, analysts and other experts say, is a good one.

"He is an industry standout," says Chip Roame, head of Tiburon Strategic Advisors, an industry consulting firm in Northern California. "He's proven himself over and over. He earned his stripes at Goldman, and as a firm, Merrill sees Goldman as its No. 1 competitor. He is a great choice -- he's the statesman they need."

"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 in the risk-management business," says Richard Bove of Punk, Ziegel & Company. "Merrill does not need assistance in other areas of the firm."

There'd been speculation that Merrill was going to tap private client/wealth management head Bob McCann, or one of the co-COOs and co-presidents -- Ahmass Fakahany or Gregory Fleming. But by favoring one area of expertise, like brokerage/retail or institutional services, Merrill risked alienating some staff. That tipped the scales in favor of Thain, Roame explains. "Thain's the right choice at the right time for Merrill Lynch," he says.

"He brings unparalleled leadership experience and knowledge of the complexities of global capital markets as well as the skills required to operate a large financial services company," says Alberto Cribiore, Merrill Lynch's interim non-executive chairman and chairman of the company's search committee.

"John [Thain] will be adept at balancing the focus on risk management and controls while taking the steps necessary to ensure the company evolves and grows," Cribiore continues. "He understands both the company's challenges, and as his track record shows, he appreciates the value associated with the Merrill global brand."

Bove echoes such views, noting that Thain can help the firm adjust its risk- management procedures, continue its push into international markets and further develop its trading operations. "In addition, Mr. Thain has never shrunk from making the hard decisions concerning personnel when necessary," Bove explains. And Thain saw how trading disciplines were created at Goldman Sachs and what it will take to create "satisfactory systems at Merrill," the analyst comments.

Still, even with all his pluses, Thain may also have limits. "In his last two years at Goldman, the company's earnings fell by a third, and he was unable to stop the loss in market share while at the New York Stock Exchange. In sum, considerable as his capabilities might be, he has been powerless to reverse major trends in the businesses in which he operates, [though] no one can."

Thain shouldn't tinker with other aspects of Merrill's operations, cautions Bove. "It does not need to be fixed, outside the risk management arena," he stresses.

Finally, Bove notes, "Thain's reputation is that of 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 salespeople."

Nonetheless, Thain is "a net plus for Merrill," and the company needs him to help it improve results in mortgages, credit derivatives, prime brokerage, private equity and international competitiveness. "In sum, we like the company and the new manager," Bove shares.

As for Chai, the former executive vice president and chief financial officer of NYSE Euronext and its predecessor company NYSE Group also served as CFO of Archipelago Holdings from 2000 to 2005. He succeeds Jeffrey N. Edwards, who's been CFO at Merrill since 2005. Edwards, who joined Merrill in 1987, is set to assume a new operating role at Merrill, the company says.

"Nelson was a key advisor to me and the board of directors at NYSE," explains Thain. "He played critical roles in the Euronext and Archipelago mergers and also has been instrumental in the development and execution of our international expansion and overall growth strategy, in addition to overseeing the finance-related operations at the company."

"You want a CFO who's very close to the CEO," explains Roame, "and is very in tune with the CEO, not distant. This [combination] is good for stability, good for risk management and good for everyone."

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Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

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