Merrill Lynch, the world’s largest brokerage, said today its embattled Chief Executive Stan O’Neal will retire, effective immediately.

Merrill Lynch named Alberto Cribiore interim nonexecutive chairman. Mr. Cribiore, a member of the Merrill board since 2003, will chair the search committee to find a replacement for Mr. O’Neal.

Mr. O’Neal, 56, came under fire when Merrill Lynch announced a $2.24 billion loss, as big bets on mortgage-backed securities were rendered almost worthless because of a global credit squeeze. His fate was also plunged into doubt after he initiated talks about a possible merger with Wachovia, according to various reports. Such a deal could have handed Mr. O’Neal a $250 million separation package if he wasn’t chosen to lead the new company.

Mr. O’Neal, who rose to power five years ago, was known for shaking up top management and putting a greater emphasis on riskier bets rather than the safety of just selling stocks.

That strategy — which handed Merrill Lynch record results during the market’s peak — came with a heavy cost during the tumultuous third quarter. Mr. O’Neal ultimately shouldered the blame for the earnings miss.

“Mr. O’Neal and the board of directors both agreed that a change in leadership would best enable Merrill Lynch to move forward and focus on maintaining the strong operating performance of its businesses, which the company last week reported were performing well, apart from sub-prime mortgages and CDOs,” Merrill Lynch said in a statement.

CDOs, or collateralized debt obligations, are complex instruments that combine slices of different kinds of risk. It was Merrill’s bet on CDOs, and the subprime mortgages underpinning many of them, that proved to be Mr. O’Neal’s downfall.