While others such as Jimmy Cayne at Bear Stearns and Chuck Prince at Citi hang on for dear life, Merrill Lynch CEO Stan O’Neal has been forced to bite the bullet.
Rightly so. Any individual who, until recently, held the titles of chairman, CEO and president has the right to glory in success, but has to carry the can when things go wrong. And they don’t get much worse than a $8.4 billion write-down in one quarter. Merrill became the leading CDO underwriter under O’Neal’s watch, and he sanctioned the purchase of mortgage originator First Franklin just as the bucks were about to stop flowing into the sub-prime market and begin pouring out.
Two misjudgements sealed O’Neal’s fate – the $3.4 billion upwards revision of losses in mortgage-related assets in the space of three weeks; and the CEO’s decision to approach Wachovia about a possible merger, apparently without the consent or knowledge of other senior executives and board members.
Each factor reflects badly on Merrill’s leadership. The real mortgage losses incurred gave the clear impression that the firm had no idea of its exposures. Its risk management looked out of control. For an investment bank that prided itself on a streamlined executive structure that allowed it to assess risks and make decisions at speed, such an impression is fatal.