Merrill Lynch Chairman and CEO Stan O’Neal’s 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. And some observers hope the brokerage firm will take more than six days to find a successor to O’Neal.
“Merrill Lynch should proceed slowly in selecting its new CEO and building a viable long-term strategy,” says Richard Bove of Punk, Ziegel & Company in a note.
The 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 October 26 reports circulated that O’Neal had been 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 is set to receive 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’s on the short list of replacements? BlackRock Inc. CEO Larry Fink; NYSE Euronext CEO John Thain. And, there’s Bob McCann, head of the brokerage operations, as well as Merrill Co-President Gregory Fleming. .
O’Neal was been chief executive officer since December 2002 and joined the company 21 years ago, the company says. Since his departure, the board of directors has elected board member Alberto Cribiore as interim non-executive chairman; Cribiore is leading the search committee to replace O’Neal and is also the managing partner and founder of Brera Capital, a global private equity firm, and former president of private equity firm Clayton Dubilier & Rice.
Ahmass Fakahany and Fleming will continue as Merrill Lynch co-presidents and chief operating officers, with Fakahany leading the company’s global support, finance and human resources functions and Fleming in charge of the integrated businesses of Merrill Lynch, including risk management.
McCann’s appointment to the top post would likely have the support of many Merrill advisors, who – earlier this year – collectively increased their net revenues for the 10th consecutive quarter.
“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.
“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.”
The firm says its advisor group expanded to more than 16,600 recently, by adding 410 FAs in the third quarter. GWM’s third-quarter net revenues were $3.5 billion, up 29 percent from the third quarter of 2006, while pre-tax earnings rose 70 percent to $953 million. Global private client revenues increased 23 percent to $3.3 billion.