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No surprise here. A day after Merill Lynch reported losses of $8 billion related to subprime mortgage losses in the company’s collateralized debt obligations (CDOs) Merill CEO Stan O’Neal is on the hot seat with the Board of Directors - and his job is on the line.
O’Neal admitted during yesterday’s earnings call that losses were primarily a result of Merrill’s lack of prudence in hedging against losses in high, AAA-rated backed security issuances. The issue that has O’Neal on the hot seat though is an adjunct, regarding conversations he allegedly had to merge Merrill with Wachovia with out prior board permission.
From Market Watch:
Merrill’s embarrassing $8 billion third-quarter loss and the early estimate that was only half the amount that has damaged O’Neal’s reputation. O’Neal’s hard-hitting management style made him a lot of enemies at Merrill. Now that he’s in trouble, it’s no surprise that the board is eager to use a misdemeanor to oust him.
That Merrill shares would rally 2.4% on the news should give the board the last nail it needs to send O’Neal packing. A CNBC report citing anonymous sources said O’Neal expects to be fired.
Bottom line - you lose that much money from admittedly over-aggressive bets combined with poor hedging and you are asking for the axe. Mix in some other items that conveniently float to the surface after that $8 billion loss and you’ve got all the leverage you need on a board of directors to complete an ouster. Stay tuned.
