Michael Lewis

Michael Lewis

Commentary | Reading the mind of master golfer O’Neal who sank Merrill

Commentary | Reading the mind of master golfer O’Neal who sank Merrill

Michael Lewis

Lots of shrewd people are scrambling to cover their rear ends. Every story has three versions. Who said what to whom, and when, is seldom clear. But in the strange case of Merrill Lynch & Co. Inc.’s shocking $8.4 billion (Rs33,012 crore) loss in its subprime mortgage portfolio, there is perhaps less ambiguity.

As Merrill’s losses mounted, we know exactly where chief executive officer Stan O’Neal was, what he was doing, and with whom:

On a golf course. Golfing. By himself. O’Neal’s golf scores, available on the US Golf Association’s (Usga) website, http://www.ghin.com/lookups/index.html, but first brought to public attention by the Bespoke Investment Group’s website, are interesting for several reasons. In the six weeks between 12 August and 30 September, as Merrill Lynch’s losses mounted, its CEO didn’t merely manage to play 20 rounds of golf, on four different courses. He played them beautifully, with a consistency that defied the pain he must have been feeling.

Indeed, a glance at the scores explains why the Merrill Lynch board agreed to pay him $48 million in 2006: The man has ice water in his veins. From the end of July to early October, when the firm Stan O’Neal ran was losing money at a rate of more than $100 million a day, his handicap wavered only slightly—in fact dropped, to 9.1 from 10.2.

Financial journalists assigned to explain how a Wall Street firm lost $8 billion on what was, in effect, a single trade, will no doubt attempt to recreate conversations and meetings inside the firm’s New York headquarters. They will be wasting their time.

Enter the zone

To get to the bottom of the matter they must enter the calm, quiet zone that was the mind of its CEO, as he golfed, alone. As he motored along empty cart paths and strolled down empty fairways, pausing every few minutes to whack away at his dimpled white ball, what exactly was Stan O’ Neal thinking? How did he manage to hold himself together so well, even as his firm fell to pieces? As it happens, the answer to those questions can be found on the scorecards on file at the Usga. On these cards O’Neal wrote down not only his impressive scores but also revealing little personal notes to himself. Notes to which I alone have been given access.

Many of these, naturally, have nothing to do with business. For instance, on 31 August, on the back of the card that proves he shot an 83 on Martha’s Vineyard’s prestigious Vineyard Golf Club, O’Neal scribbled, “Stan is certainly the man!" On 22 September, after he’d shot an 80 at the verdant Waccabuc Country Club, he wrote, with his natural ear for the language, “Eighty makes me greaty!"

But a handful of those notes hint at the inner workings of the 21st century Wall Street CEO in crisis. Little black smudges made with stubby little pencils reveal a man sitting in the eye of a storm, almost perfectly at peace with himself:

12 August: Purchase Country Club.

All alone on the course. No one to talk to so talked to myself. Had a thought: No one knows where I am! Really! Turned off cellphone. Five hours later I wondered: Where did the time go? A perfect day.

18 August: Purchase Country Club.

Birdie on 11 was a thing of beauty. It wouldn’t have been possible if I’d allowed myself to be distracted. Details are the enemy of golfing excellence. Gave me another thought: Golf is like running Merrill Lynch! The trick is to keep it simple. Be a big picture person. Note to self: smartest thing you ever did was to take firm away from the day-to-day drudgery and make just a few big bets. Frees up time.

26 August: Vineyard Country Club.

Five birdies against three bogeys. All these ups and downs! Mood swings are tremendous and exhilarating. But can’t let anyone around me know what I’m feeling. Not that there’s anyone around me—but you never know who’s on the next tee. Golf is so much like running Merrill Lynch! When I play I feel I might as well be at Merrill Lynch. In a way, I am.

It must have been around this time that O’Neal received word that something unusual was afoot on Wall Street as he shot, in rapid succession, a pair of 90s. Painful as those scores must have been to him, he could hardly hold himself accountable. There was panic in the credit markets and Merrill Lynch was at risk.

The CEO showed up at the office, briefly, reassured the media that there was no risk of contagion in the subprime markets, and then returned to his single-minded pursuit of excellence. From his notes, we see how hard it can be for a golfer to concentrate, when he happens to also be a Wall Street CEO.

26 August: Vineyard Country Club.

Freaking markets! Cellphone rang while chipping out of a bunker. People saying subprime means subpar. Note to people: Subpar is good! Took a mulligan, which is only fair. (Check with compliance?) Wall Street a hard place to achieve golfing excellence. Memo to Usga: Handicaps should take day job into account.

31 August: Vineyard Country Club.

Putting on the 12th when a Merrill customer came out of the woods and whistled. Missed the putt! He wasn’t even a member. Said he saw a black guy driving in and figured it was either me or Vernon Jordan. He wanted to discuss his portfolio. Some people! Told him that investing was like golf. That confused him long enough for me to get to the cart and hit the gas. How did he find me? Will others?

2 September: Purchase Country Club.

Playing alone again. Can’t find anyone who can get away from the desk—even Jimmy Cayne now says he’s too busy. Quitter. I told him that the bear will do what the bear will do. His handicap won’t. Walking down 16th fairway I felt very alone. Then I realized: I am alone. Had another thought: Alone is how leaders are supposed to feel in moments of crisis. Churchill felt alone, too. Did he golf?

As summer turned to fall, Merrill Lynch’s embattled CEO obviously took less and less delight in his many birdies. Tellingly, all but one of his diary entries occur beside the scores of holes that he bogeyed —and the one exception was a hole that the CEO triple bogeyed, at Shinnecock Hills Golf Club in the Hamptons, on 22 September. It was at Shinnecock Hills that O’Neal shot what for him must have been a highly disappointing 89, evidently because he played in haste, in his rush to get to the first tee at Waccabuc, 50 miles (80km) north of New York, on the same day.

22 September: Freaking water hazard! Freaking freaking water hazard!! Freaking, freaking, freaking water hazard!!! Remember: Bigger bets at ML means less time having to think about the firm, and less time in office means more time to swim for balls. Losing balls is a sign of weakness, even when no one sees you do it. Best case scenario: find ball. Worst case scenario: $160 million payout.

To judge from this unusually emotive scorecard entry, the loss of a single golf ball in the pond just off the eighth fairway at Shinnecock Hills triggered in the CEO a surprising amount of resentment toward the firm that kept bothering him to run it. More generally, trouble on the links clearly unsettled the CEO’s mind and dragged it, reluctantly, back to troubles at the office (wherever that was). I leave it to the reader to decide the meaning, and the importance, of Stan O’Neal’s final two scorecards:

29 September: Office called midswing! On a Saturday! Why even bother to play alone????? 5.1 billion reasons to blame for this one. I think.

30 September: Make that 8.4 billion reasons to blame.