(China Daily)
Updated: 2007-11-01 07:26

Merrill Lynch's departing Chief Executive Stan O'Neal will walk away with $161.5 million in stock, options and retirement benefits, the company said.

O'Neal, the second-highest paid Wall Street CEO in 2006, retired from Merrill Lynch & Co Inc on Tuesday, almost a week after the investment bank reported its largest-ever quarterly loss. The $2.24 billion loss was precipitated by a $7.9 billion third-quarter writedown, as the company revalued assets backed by shaky mortgages. O'Neal's ouster was expected after the loss.

O'Neal left with a $131.4 million equity package of stock, options, restricted shares and restricted units. His restricted stock and restricted stock units will continue to vest on their original schedules, the company said.

He also has retirement benefits worth $24.7 million, while his deferred compensation stands at $5.4 million, according to the company. He will be entitled to an office and an executive assistant for up to three years.

Merrill Lynch did not name a replacement for O'Neal, whose ouster had been expected.

Laurence Fink, the chief executive of investment manager BlackRock Inc, turned down an overture from Merrill's board, according to a person with direct knowledge of the offer who was not authorized to speak publicly. With the presumed front-runner out of contention, filling the top spot at Merrill Lynch is not expected to be easy given the remaining unknowns from the global credit crisis.

Any replacement will face the daunting task of cleaning up investments in subprime mortgages and other risky types of debt, and rebuilding an investment house badly bruised.

Further writedown

There is speculation by a number of analysts that Merrill Lynch faces a $4 billion writedown during the fourth quarter. This would be on top of a $7.9 billion charge taken last quarter, a stunning amount since Merrill originally said it would write down only $4.5 billion because of credit market turmoil.

O'Neal was also criticized for reportedly approaching Wachovia Corp about some kind of merger without the approval of his board.

"These losses, coupled with rumors that O'Neal had proposed a merger with Wachovia without the board's approval, essentially dug O'Neal's grave," said Morningstar analyst Ryan Lentell.

"The new CEO's first priority must be to ensure proper risk-management procedures are in place to prevent a recurrence of the quarter's loss."

O'Neal accepted blame for the losses, which immediately led to calls for his ouster. The mistake would prove to be his last, ending a career that spanned more than two decades at Merrill.

He was one of the highest-ranking blacks on Wall Street - a stunning climb from his impoverished roots in Alabama as the grandson of a former slave.

O'Neal emphasized riskier bets than past Merrill CEOs, rather than the safety of just selling stocks. That strategy - which handed Merrill Lynch record results during the market's peak - came with a heavy cost during the tumultuous third quarter.

Merrill Lynch still has sizable portfolio of complex financial instruments called collateralized debt obligations, which combine slices of different kinds of risk. It was Merrill's bet on CDOs, and the subprime mortgages underpinning many of them, that proved to be O'Neal's downfall.

Dealing with that portfolio will be the priority for co-presidents and chief operating officers Ahmass Fakahany and Gregory Fleming. Merrill Lynch said their duties will be split - with Fleming in charge of Merrill's front-line businesses, such as its brokerage.

Fakahany, a close confidant of O'Neal, will lead back-office functions such as finance and human resources. Robert McCann, the president of the company's wealth management group, was not named in the power-sharing agreement.

Both McCann and Fleming were tipped as potential CEO candidates.

Among those who had been said to be considered outside the firm were BlackRock's Fink and NYSE Euronext CEO John Thain. O'Neal resigned his board seat at BlackRock, in which Merrill owns a 49 percent stake.

Spokesmen for Fink and Thain declined to comment.

Agencies

(China Daily 11/01/2007 page15)