Stan O'Neal's future as chief executive of Merrill Lynch looked in severe doubt today after it emerged he went behind the back of the board to discuss a merger.

In a sign of the intense pressure O'Neal is under in the wake of the subprime mortgage crisis, he recently discussed a deal with Wachovia - a bigger but less well-known rival.

This week Merrill reported a thirdquarter loss of $2.3 billion (£1.1 billion) after taking a near-$8 billion hit on bad loans.

The sheer size of the losses prompted Wall Street to begin openly speculating that O'Neal's days could be numbered. The latest revelations, in today's New York Times, could signal the end of his five-year reign.

Merrill directors are furious that O'Neal approached Wachovia boss G Kennedy Thompson without their knowledge.

The board has discussed candidates to replace O'Neal and John Thain of the New York Stock Exchange is said to be on the list. Laurence Fink, chief executive of investment house Blackrock, has also been mentioned. Merrill owns 49% of Blackrock.

O'Neal, the grandson of a slave, enjoyed a meteoric rise to the top of Merrill Lynch. Once in place, he radically overhauled the culture of a firm known for having a gentler, more family-led culture than other Wall Street giants.

That O'Neal felt Merrill needed to fall into the arms of a partner will prompt investors to worry how much more bad news is to come.

The $8 billion write-off was much bigger than expected and came just weeks after the bank insisted the situation was contained at $5 billion.

Merrill shares have slumped since the news, making it vulnerable to a takeover bid.

On the face of it, a merger with Wachovia would make sense, though it would probably attract the attention of the competition authorities.

Merrill has 15,000 brokers selling shares and other investments while Wachovia has 10,000. Wachovia, with a stock market value of $86 billion, is rated higher than Merrill, at $50 billion.

O'Neal said this week he was taking responsibility for recent failings. However, he has fired several top executives recently.

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