Merrill Lynch chairman and chief executive, E. Stanley O’Neal, has allegedly floated the idea of a merger with a large bank, angering Merrill’s board and potentially threatening his job, The New York Times reports
O’Neal raised the possibility of a merger with Wachovia, a bank based in Charlotte, N.C., without getting the approval of Merrill’s board. This constituted a major breach of corporate protocol.
According to sources close to the board, the members even discussed potential replacements. Candidates who were discussed are believed to have included Laurence D. Fink, chairman and chief executive of BlackRock, an investment firm partly owned by Merrill, and John A. Thain, chief executive of the New York Stock Exchange.
Both Merrill Lynch and Wachovia declined to comment.
It would appear that a merger with Wachovia is unlikely, at least for now. However, the episode serves to highlight how greatly the subprime mortgage crisis has shaken Merrill.
On Wednesday, Merrill reported a third-quarter loss of $2.3 billion and announced it would take a write-down of $7.9 billion on subprime mortgages and complex debt instruments.
A merger could potentially help Merrill ride out the ongoing crisis and make Wachovia a much more powerful financial institution. Though less well known, Wachovia has a higher stock market capitalisation: about $86 billion, versus $52 billion for Merrill.
Any merger between Merrill, with 15,000 retail brokers, and Wachovia, with 10,137 brokers, would almost certainly raise antitrust questions, and a deal would probably be received unfavourably by Merrill’s brokers. In recent weeks O’Neal has fired a number of executives, the most recent round of cuts since he took up the position.
Merrill’s stock has fallen almost 10% in the past two days as O’Neal has come under increased criticism for what analysts called a complete failure of risk management. With billions of dollars slashed from its market capitalisation and analysts predicting additional write-downs, Merrill is an increasingly attractive target.