Merrill Lynch’s Thain Surprise

Many on Wall Street were surprised by yesterday’s announcement that the CEO of NYSE Euronext, John Thain, will be the new chairman and chief executive officer of Merrill Lynch. Mr. Thain, who will be succeeded by a former president and co-COO at the exchange, Duncan Niederauer, was not considered the front-runner.Since the departure of Stanley O’Neal, who was forced out of the large investment bank on October 30, after announcing an $8.4 billion write-down and making unapproved merger overtures to Wachovia, there had been widespread speculation that the job would fall to Laurence Fink. He is chairman and CEO of BlackRock, which is 49% owned by Merrill Lynch.Mr. Fink met with representatives from the board soon after Mr. O’Neal’s departure, and appeared likely to be appointed to the top Merrill post for two key reasons: As the founder of BlackRock, Mr. Fink is widely respected for his deep knowledge of credit markets and fixed-income securities, which were at the heart of the outsize losses that cost Mr. O’Neal his job. In addition, he is known to be close to a co-president of Merrill, Gregory Fleming, who also was considered a potential CEO candidate. The view was that Mr. Fleming, who is several years younger than Mr. Fink, would be content to serve as Mr. Fink’s no. 2 while waiting for his chance at the top job.There are several reasons why Mr. Fink might have wanted to stay on at BlackRock. According to sources within the Treasury Department, who agreed to speak on background, the $75 billion so-called Superfund is close to being launched, and BlackRock may be tapped to manage the fund’s assets. The thinking is that the Superfund, put together by Bank of America, JPMorgan Chase, and Citigroup to create more liquidity in the credit market, must be managed by a top-notch firm to have credibility. Indications are that other highly regarded fixed-income managers such as PIMCO were also considered, but that BlackRock is the likely winner.There is also speculation that Mr. Fink was loathe to take on the Merrill post because the full extent of the investment bank’s portfolio losses may not yet be clear. Because he has successfully steered his firm clear of one of the worst market disasters in decades, Mr. Fink may not have wanted to take on the burden of cleaning up the Merrill mess.In addition, his continued employment at BlackRock may have related to his sizeable holdings in the firm, which have been estimated at more than $350 million. It was not clear how much of this stake might have been sacrificed if Mr. Fink had resigned.As for Mr. Thain, his ascendance at the investment bank is testament to his successful transformation of the New York Stock Exchange, and also likely fulfills a long-held ambition to manage a large investment bank. Mr. Thain was co-president of Goldman Sachs under Henry Paulsen, who is now Treasury secretary, before moving to the NYSE. He left in 2004 after being passed over for the CEO spot. Some viewed him as an outside contender for the Merrill post because of the perceived need to rebuild the culture at the shaken firm. Mr. Thain, who earned an engineering degree from MIT, has long been viewed as cerebral in the extreme, someone that New York magazine once called a “shrewd, calculating technocrat.”However, his tenure at the NYSE has also shown him to be a leader. He skillfully navigated the turbulent waters at the NYSE as he fought an unpopular battle to broaden the role of electronic trading and to take the company public. These challenges to the status quo enraged some seat holders at the exchange, but with the stock having risen more than six-fold since it went public in 2006, complaints today are few and far between.He brings to Merrill a great understanding of markets and trading, and considerable international savvy. His resume lacks any hands-on retail brokerage experience — once considered a prerequisite for the CEO title — but he brings something even more important to the job, integrity. Mr. Thain took over the NYSE in the wake of the scandal involving Richard Grasso’s compensation and quickly restored the exchange’s image by implementing first-class governance. His straight-shooter reputation will doubtless come in handy as he sets about restoring confidence in his new firm.peek10021@nysun.com

Merrill Lynch’s Thain Surprise

Merrill Lynch’s Thain Surprise

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