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Merrill subprime shock puts chief under pressure
Simon English and Bill Condie, Evening Standard25 Oct 2007
Merrill Lynch is poised to reveal losses from bad mortgages that are $2.5 billion (£1.2 billion) higher than expected, potentially throwing world stock markets into renewed strife.
The admission from the world's biggest stockbroker that it has so badly miscalculated its exposure will reignite fears that the credit crunch has more victims to claim.
It also puts severe pressure on chief executive Stan O'Neal for the first time since he took charge in December 2002.
Last month Merrill wrote-off $5 billion (£2.5 billion) in mortgage-related securities - already the biggest losses of any Wall Street house. It reports third-quarter results later today that are expected to be disastrous.
Wall Street is openly speculating that O'Neal, the grandson of a slave who rose to lead one of America's most important financial institutions, could lose his job.
The subprime crisis has already claimed some high level scalps at Merrill. Osman Semerci, head of a newly formed fixed income, commodities and currencies division, and Dale Lattanzio, the head of structured credit products, were given their marching orders after the July credit market collapse.
After Merrill announced its original $5 billion writedown, Moody's and Fitch downgraded its long-term debt outlook to negative from stable. Moody's said the writedown exceeded expectations.
O'Neal has pursued a higher risk path since assuming control of the bank, pushing Merrill into areas far from its traditional strength of asset management. He unceremoniously fired other top executives deemed to be a threat to his pre-eminence.
The Merrill boss will need to reassure the market today that there is no further bad news to come.
He sent a memo to staff in late July, assuring them the bank's risk levels were under control.
Bad numbers from Merrill will lead to new fears about what other as yet undisclosed nasties are lurking.
Several times since major problems emerged over the summer, senior players in the market have claimed that the worst of the credit crunch is over, and that markets would soon begin to operate normally. Each time this has proved premature.
Merrill declined to comment ahead of the announcement.
