Stan O’neal living on the edge of Merrill

Stan O’neal living on the edge of Merrill

The race to be the most vulnerable chief executive on Wall Street is one you’d think the competitors want to lose. But Stan O’Neal of Merrill Lynch Co. Inc. seems to be dead set on sprinting past his rivals.

Until this week, the front-runners were Citigroup Inc.’s Chuck Prince and Bear Stearns Companies Inc.’s Jimmy Cayne. Citi’s losses so far from the summer credit crunch have been chunky, even considering its size. More broadly, Prince hasn’t yet been able to deliver the benefits that were supposed to flow from the behemoth’s size. Ironically, JPMorgan Chase and Co.’s chief Jamie Dimon, the former acolyte to Prince’s predecessor Sandy Weill, has made a better fist of a Citigroup-like business model.

Cayne, meanwhile, steadied his position this week by unveiling an alliance between Bear and China’s Citic Securities Co. Ltd. While it may not move the needle much on the Wall Street firm’s international ambitions, it’s a step in the right direction. Beyond that he’s kept his head down since Bear’s subprime mortgage-related credit troubles came to light, and then dented third-quarter earnings.

The former race leaders can breathe easier for now. O’Neal seems to be charging hard for the line, undercutting a hitherto decent record.

On 24 October, Merrill Lynch reported third quarter write-downs of $7.9 billion across CDOs and US subprime mortgages. The figure was significantly greater than the $4.5 billion of write-downs the company estimated in a pre-announcement on 5 October. The actual number smacked of inadequate oversight at the top.

It’s almost an invitation to US regulators, which are known to be scrutinizing Wall Street’s valuations of illiquid securities such as these. A report now suggests that O’Neal approached Wachovia Corp.’s chief executive Ken Thompson, without authorization from his board, to suggest a merger in the days before the release of Merrill’s second, higher, estimate of losses. An alarming explanation is that he thought the firm needed rescuing.

If not, it must have been a desperate effort to deflect attention and perhaps salvage his job.

In any event, it seems to have irritated some of his no-doubt, shell-shocked board. Now, O’Neal can only dream of the job security enjoyed, for example, by Lloyd Blankfein of Goldman Sachs Group Inc.

Rumours of O’Neal’s imminent ouster are rife. He may have more fight in him yet. But if he does go, it might throw attention back on the race for the second place.