Merrill’s NEW message: “If you thought our earlier writedown was bad…”
On this blog, October 24, 2007:
Merrill Lynch CEO Stan O’Neal better be glad that he’s been regarded more highly than Citigroup CEO Chuck Prince up to now, because Merrill’s horrific, embarrassing writedown of more than $8 billion in bad debt puts even Citi’s $5 billion-plus writedown to shame.
Ah, what a difference a couple of months makes! O’Neal was thrown out on his ear, Merrill hired John Thain to replace him, and now the firm expects to lose even more from bad debts:
Giant Write-Down Is Seen for Merrill
Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.
The article is worth reading, both to grasp the scope of Merrill’s problems and to get an idea of what Thain is doing to turn the tide — selling non-core assets, restructuring bonuses, and promoting teamwork, among other things.
We can hope — it may be vain, be we can hope — that future generations of bankers won’t make the risky gambles that Merrill (and its peers) made on mortgages, and that future CEOs will learn from the negative example of Stan O’Neal. Because for as bad as Merrill’s balance-sheet problems are, it’s the cultural problems in the firm that may be even more debilitating.
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Of course Alcoa grabbed Stan O’Neal. The myth persists that the best CEO talent comes from outside and that getting a star is more important than getting it right. When guys like Stan keep moving on we call it “Pass the Trash.”
Linda: I’m sympathetic to what you say because I’m deeply skeptical about O’Neal’s performance at Merrill. But we should keep in mind that he only has a board seat, not an executive role, with Alcoa.
Me personally, I wouldn’t have him on my board, because I don’t like his reputation for combativeness and because I don’t think he would admit how badly he screwed up at Merrill. To put it another way, I’d rather have somebody with the technical executive chops AND more depth as a person – the ability to learn from mistakes and keep the ego out of the way when necessary.
That said, a board seat might be the right fit for O’Neal. He didn’t become CEO at Merrill by accident: it happened on the basis of decades of high performance in his earlier career at Ford. The CEO job may have been a case of the Peter Principle in action, i.e. he was promoted one level too high for his abilities. It happens frequently in the business world, and in fact I’d argue it’s the exact same thing that happened with Chuck Prince at Citigroup: a very good executive who was over his head as a CEO.
So, maybe as a board member, O’Neal can bring his considerable expertise to bear, but *without* creating the kinds of problems he did at Merrill.