Unless you live in a cave, you know that Merrill Lynch hired NYSE Euronext’s CEO, John Thain. The appointment was announced yesterday.
A day before Thain was chosen, 21 top brokers (calling themselves, “Merrill’s Circle of Champions”) wrote a letter to the board asking that the Global Private Client unit be represented at the presidential or co-presidential level and supporting McCann. The rank-and-file love McCann. And as for Thain? He’s considered to be rather cerebral and cool, or so The Journal today (subscription required) quotes former CEO Dan Tully. Merrill chiefs are usually plucked from in house, and were previously brokers—more convivial and backslapping, the epitome being former CEO David Komansky.
Thain might have a hard time generating warm and fuzzies though. “John Thain is not known as a charismatic individual. He is known as a very intelligent, cerebral individual, and he’s going to be running an organization that has some 16,000 sales people. So how he is going to interface there I am unclear,” says Dick Bove of Punk Ziegel.
Bove’s thoughts were echoed in conversations we had with Merrill reps this morning (albeit in a very unscientific survey): “Thain needs to come out and say, ‘we have the best advisors. We’re going to continue doing what we’ve always done—which is keep them trained, and always up-to-date on the new tax laws—so that they are the best advisors, and we sell quality advice not transactions.’ If he comes out and says that early on; that will make me feel good,” the rep says.
Even with the drama leading up to Thain’s succession, some reps weren’t exactly chewing their hats over this one; the Private Client Group eats what it kills, and doesn’t really need the support of the other business units. Says another Merrill FC, “Those of us out in the field really have no reaction to his being named. It’s nice to have somebody at the helm, and he was one of the two or three people that were named.” This rep was happy with O’Neal: “My take on the whole thing is, Stan ran the firm very well, he cut costs—something that hadn’t been done at Merrill Lynch in years—and that was fine. He happened to have an episode that went bad on his watch, and when that happens usually somebody’s head has to roll at that point in time.”
O’Neal is credited with moving the firm into international markets, expanding their trading operations into currencies, commodities and fixed-income products and aggressively cutting costs; all things Bove says Thain can build upon. In addition, he says, from time to time Merrill needs some vigorous cost cutting. “Thain has shown that he has no fears about slashing and burning when that is necessary.”
But O’Neal apparently didn’t understand risk management; Thain could come in handy. “If you look at Merrill Lynch and try to assess their problems, you’d see that they’re all associated with their risk-management business,” says Bove. “The risk-management business is a highly complex business that virtually no other firm on Wall Street, except Goldman Sachs, has figured out how to do properly. Since Thain came from Goldman Sachs, and was there when they built their risk-management systems, he has the capability of solving Merrill’s problem in this area.”
Here’s a recap of the Merrill drama over the last couple of weeks: On October 24, former chairman and CEO of Merrill Lynch Stan O’Neal announced the firm had a net loss of $2.3 billion, due largely in part from $7.9 billion in write-downs related to exposure to sub-prime mortgages and collateralized debt obligations (CDOs). This was the worst recorded loss in the firm’s 93-year history. Less than a week later, O’Neal “retired,” after 21 years at the company, the last five as CEO. Although O’Neal lost the privilege of 24-hour bodyguards and use of the private jet, he did receive a paltry sum of $161.5 million in retained stock awards and benefits, and a pro-rated share of his base salary, which last year was $700,000. Then, in early November, it was rumored that BlackRock’s head, Larry Fink, was offered O’Neal’s post. Although Fink has strong ties to the brokerage since BlackRock took over Merrill’s proprietary asset management unit in 2006, less than two weeks later, Thain was officially chosen.