Merrill's Job: Cleaning Up And Moving On

As the board of Merrill Lynch & Co. searches for a successor to ousted Chief Executive Stan O'Neal, it finds itself in the tricky position of selecting an executive who will stem the losses in Merrill's battered bond business, stabilizing the firm -- but will not be so risk-averse as to turn back the gains Mr. O'Neal made in making Merrill more profitable.One of management's first headaches will be a regulatory inquiry by the enforcement staff of the Securities and Exchange Commission into the adequacy of Merrill's disclosures to investors about an $8.4 billion write-down that fueled Mr. O'Neal's ouster, according to people familiar with the inquiry. Merrill declined to comment on the probe.

The board yesterday named director Alberto Cribiore, a longtime Wall Street buyout executive, to lead its CEO search among internal and external candidates, leaving current management largely in place. The firm awarded responsibility for all the firm's revenue-generating activities and risk management to co-President Gregory Fleming, effectively making him the front-runner among internal candidates for the top job. In doing so, the board limited Merrill's other co-president, Ahmass Fakahany, to support functions, finance and human resources -- which some others called a signal of his expected eventual departure.

Mr. Fakahany formerly shared oversight of Merrill's bond-market activities, including a big buildup of its position in collateralized debt obligations, which are pools of securities backed by assets such as subprime mortgages to risky borrowers that plummeted in value this year.

The chief-executive search is complicated by the risky nature of the firm's remaining $20.9 billion in holdings of CDOs and subprime mortgages, which analysts expect could generate an additional $4 billion in loses in the fourth quarter. Any new chief executive may need time to evaluate such holdings before signing up for the job.


WSJ's Nik Deogun speaks with Paul Lin about Stan O'Neal's departure, his golden parachute, and the outlook for Merrill, including whether it will become an acquisition target.
Indeed, the SEC inquiry is likely to address how Merrill has been valuing such holdings during the subprime credit crunch this year, and how fully the Wall Street brokerage informed investors of the possible losses, the people familiar with the probe said.