Next Merrill Lynch CEO Will Need to Gain Investor Trust Even As Brokerage Faces More Losses.
No matter who is running Merrill Lynch & Co., it's going to need a regimen of restraint and recuperation after getting badly bruised by the global credit market shakeout.
The world's largest brokerage took a $7.9 billion writedown for subprime mortgages and asset-backed bonds whose values went sour. Many on Wall Street believe there's more where that came from -- maybe another $4 billion -- and Merrill's leadership will need to reduce risk and rebuild morale among its ranks.
Stan O'Neal -- who led Merrill Lynch to its biggest loss since being founded 93-years ago -- is reported to be in the midst of finishing the terms for his departure. Once that's completed, it is widely expected the 11-member board will reach out to BlackRock Inc. Chief Executive Laurence Fink for the job.
A person familiar with the matter who was not authorized to speak publicly said Fink had yet to be approached by Merrill's board -- and BlackRock's own directors have yet to call a meeting. Merrill declined to comment.
Fink -- or whoever is named to lead Merrill Lynch -- will have to immediately roll up his or her sleeves.
"It's a very bad situation to walk into because all the shoes have yet to drop," said David Easthope, a senior analyst with financial services consultant Celent. "They don't know the full losses yet, and they still have to go out and win support for their agenda and vision."
There are reports that Merrill Lynch could write down another $4 billion in value of asset-backed securities and other complex financial instruments in the fourth quarter. It could lead to the second-straight loss after Merrill went into the red by $2.4 billion during the third quarter.
The new CEO would have to make sense out of Merrill's investment portfolio, and immediately begin to scale back risk while avoiding any kind of fire sale of securities stuck on its books that few investors appear to want now. That could become tricky as a some of its investments -- collateralized debt obligations -- combine slices of different kinds of debt into a single security.
It will not be easy to sift through the CDOs, considering the value of these securities have dropped significantly since the summer's credit turmoil. The drop in the fixed-income markets led Merrill Lynch to at first estimate its writedown at $4.5 billion on Oct. 5 -- some 76 percent lower than what the brokerage finally reported.
Michael Mayo, a Deutsche Bank analyst who lambasted Merrill Lynch's management during a conference call about the earnings miss, said the new chief executive would face three tasks after taking over: "Get the numbers right, gain credibility and trust with investors, and fix (the) lack of risk controls while not hurting the 7/8ths of the company that is performing well."
One reason Fink is well suited for the job is his experience in the fixed-income market after starting off as a bond trader at First Boston. He later went on to launch BlackRock, turning it into one of the world's biggest investment managers with a near-sterling track record on Wall Street.
The company -- 45-percent owned by Merrill -- launched in 1988 with $1 billion in assets that has grown to its current $1.3 trillion.
There are some who question if Fink would even want the job because his position is secure at BlackRock, where he is respected by employees and investors. At Merrill Lynch, any potential CEO would face investors and staff who have been battered by the third-quarter loss.
Fink earned more than $24 million in 2006, and holds at least $391 million in BlackRock shares at current prices. That compares with the roughly $48 million salary for O'Neal, who also has $160 million in stock and retirement benefits, according to James Reda, founder of compensation consultancy James F. Reda & Associates.
What makes Fink an ideal contender is that he's a known name on Wall Street, and counts people like Morgan Stanley CEO John Mack as friends. He also has enjoyed good relations with O'Neal. They had dinner together just last Thursday.
Fink has friends on the inside, too, including Merrill co-President Greg Fleming, also considered a contender. There have been reports that both men might share power to lead the firm.
No matter who is running Merrill Lynch & Co., it's going to need a regimen of restraint and recuperation after getting badly bruised by the global credit market shakeout.
The world's largest brokerage took a $7.9 billion writedown for subprime mortgages and asset-backed bonds whose values went sour. Many on Wall Street believe there's more where that came from -- maybe another $4 billion -- and Merrill's leadership will need to reduce risk and rebuild morale among its ranks.
Stan O'Neal -- who led Merrill Lynch to its biggest loss since being founded 93-years ago -- is reported to be in the midst of finishing the terms for his departure. Once that's completed, it is widely expected the 11-member board will reach out to BlackRock Inc. Chief Executive Laurence Fink for the job.
A person familiar with the matter who was not authorized to speak publicly said Fink had yet to be approached by Merrill's board -- and BlackRock's own directors have yet to call a meeting. Merrill declined to comment.
Fink -- or whoever is named to lead Merrill Lynch -- will have to immediately roll up his or her sleeves.
"It's a very bad situation to walk into because all the shoes have yet to drop," said David Easthope, a senior analyst with financial services consultant Celent. "They don't know the full losses yet, and they still have to go out and win support for their agenda and vision."
There are reports that Merrill Lynch could write down another $4 billion in value of asset-backed securities and other complex financial instruments in the fourth quarter. It could lead to the second-straight loss after Merrill went into the red by $2.4 billion during the third quarter.
The new CEO would have to make sense out of Merrill's investment portfolio, and immediately begin to scale back risk while avoiding any kind of fire sale of securities stuck on its books that few investors appear to want now. That could become tricky as a some of its investments -- collateralized debt obligations -- combine slices of different kinds of debt into a single security.
It will not be easy to sift through the CDOs, considering the value of these securities have dropped significantly since the summer's credit turmoil. The drop in the fixed-income markets led Merrill Lynch to at first estimate its writedown at $4.5 billion on Oct. 5 -- some 76 percent lower than what the brokerage finally reported.
Michael Mayo, a Deutsche Bank analyst who lambasted Merrill Lynch's management during a conference call about the earnings miss, said the new chief executive would face three tasks after taking over: "Get the numbers right, gain credibility and trust with investors, and fix (the) lack of risk controls while not hurting the 7/8ths of the company that is performing well."
One reason Fink is well suited for the job is his experience in the fixed-income market after starting off as a bond trader at First Boston. He later went on to launch BlackRock, turning it into one of the world's biggest investment managers with a near-sterling track record on Wall Street.
The company -- 45-percent owned by Merrill -- launched in 1988 with $1 billion in assets that has grown to its current $1.3 trillion.
There are some who question if Fink would even want the job because his position is secure at BlackRock, where he is respected by employees and investors. At Merrill Lynch, any potential CEO would face investors and staff who have been battered by the third-quarter loss.
Fink earned more than $24 million in 2006, and holds at least $391 million in BlackRock shares at current prices. That compares with the roughly $48 million salary for O'Neal, who also has $160 million in stock and retirement benefits, according to James Reda, founder of compensation consultancy James F. Reda & Associates.
What makes Fink an ideal contender is that he's a known name on Wall Street, and counts people like Morgan Stanley CEO John Mack as friends. He also has enjoyed good relations with O'Neal. They had dinner together just last Thursday.
Fink has friends on the inside, too, including Merrill co-President Greg Fleming, also considered a contender. There have been reports that both men might share power to lead the firm.
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