Transcripts

Investors Buy Into The Ouster of Merrill Lynch CEO, Stan O'Neal

SUSIE GHARIB: Shares of Merrill Lynch rose more than 2 percent today as investors waited for official word from the world's largest broker that Stan O'Neal is out as CEO. Reportedly the Merrill board ousted O'Neal over the weekend in the wake of the firm's huge losses from the sub-prime mortgage crisis. Today speculation heated up on who will take over the top spot at Merrill. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Losing billions of dollars for shareholders certainly didn't help the career of Merrill Lynch chief executive Stan O'Neal. After all, Merrill's third quarter loss of more than $2 billion on $8 billion in write-downs from bad sub-prime bets was the largest in Wall Street history. But long-time banking analyst Dick Bove says while Merrill's dismal performance may be the impetus for O'Neal's ouster, it is not the primary reason.

DICK BOVE, ANALYST, PUNK ZIEGEL & CO.: He just did not have good, strong relationships within the firm. There isn't a core group of Stan O'Neal supporters inside of Merrill Lynch and there are a lot of people who would love to see him pushed aside because he hurt them.

PRATT: Bove says Merrill is being too hasty with O'Neal, adding the firm has been fickle about its long-term strategy. Nevertheless, with O'Neal out, Merrill's board will have to decide whether to promote a new CEO from within or look outside. Merrill Co-President Gregory Fleming and brokerage head Robert McCann are two names reportedly under consideration. Many analysts say Blackrock Chief Executive Laurence Fink could be the top contender. Blackrock, a money management firm, is 49 percent owned by Merrill and Fink is highly regarded on Wall Street. Others, however, are critical of putting Fink at the helm.

BOVE: It's not based upon an internal study which says this is the direction of the firm, because this is where the industry is going over the next 20 years and this is the right guy to execute. It seems more to be this is a very bright, capable guy with a good image. Let's grab him and put him in the top slot.

PRATT: As for the rumor the firm may now be in play, most analysts believe it's unlikely. That's because the three U.S. banks large enough to swallow Merrill -- Citigroup, Bank of America and JPMorgan Chase -- are not believed to be in the market for a monster-sized acquisition. And because Merrill is likely to be in transition for many months, some recommend steering clear of the stock. Morningstar analyst Ryan Lentell disagrees, adding that $76 a share for Merrill would be fair value.

RYAN LENTELL, ANALYST, MORNINGSTAR: I think Merrill overall is performing pretty well. They need to recover from the misstep in fixed income, make sure they have risk control procedures in so it doesn't happen again. But overall we think the stock is undervalued today.

PRATT: Some analysts are concerned that Merrill is taking so long to make an announcement about O'Neal. They now worry that there are other problems at Merrill the board may be trying to get a handle on before going public regarding leadership. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.