Bearish on The Bull

by Ryan Caione, November 2nd, 2007, 7:00 am

Not long ago, former Merrill Lynch chief Stanley O’Neal was the toast of Wall Street. The first African-American CEO of a major investment bank, O’Neal was regularly leading one of the industry’s most storied institutions — the company known as “The Bull” — to record earnings. Fast-forward a few years, and in the what-have-you-done-for-me-today business world, he has become the poster child for the subprime mortgage bust.

It happened so quickly. Earlier this year Merrill Lynch was producing better-than-expected earnings figures. But on October 5, the company unexpectedly projected a $4.5 billion writedown of mortgage-related investments. When it announced its third-quarter earnings on October 24, that figure had ballooned to nearly $8 billion and Merrill Lynch revealed a $2.24 billion loss, the biggest in company history. Later, O’Neal reportedly engaged in surreptitious merger talks with Wachovia, supposedly infuriating Merrill Lynch’s board. The SEC began an inquiry into whether the firm adequately communicated the nature of its writedowns to its investors. Less than a week after Merrill Lynch reported its third quarter earnings, O’Neal was forced to retire from the company.

Don’t weep for Stanley O’Neal, however. Though his career in high finance has probably ended, he’ll be riding off into the sunset with a golden parachute that would make Richard Grasso blush: more than $160 million in restricted Merrill Lynch stock, options, and retirement benefits. Despite his dramatic downfall, O’Neal, whose grandfather was born into slavery, is one of the greatest rags-to-(many) riches stories in America.

So what’s next for The Bull? The company is probably too big and its wounds too fresh to be a takeover target. And everyone else has their own mortgage-related headaches to deal with. (Then again, a collapse of Merrill Lynch seemed unlikely as little as a month ago, too.)

Names bandied about as the successor to O’Neal include Laurence Fink, CEO of BlackRock (which merged with Merrill Lynch’s investment management business in 2006 and is 49%-owned by Merrill) and NYSE Euronext CEO John Thain, as well as internal candidates Bob McCann, head of Merrill Lynch’s private client group, and company co-president Gregory Fleming. Rebuilding the firm may be daunting (analysts speculate that the next CEO could face an additional $4 billion of mortgage-related writedowns in the fourth quarter), but the gig remains one of the most prestigious on the Street, provided The Bull can remain independent.