Business

NEW YORK (AP) ― Merrill Lynch & Co. hired someone outside the company to become its leader for the first time since it was founded 93 years ago — and he comes from a rival whose alumni have done quite well for themselves.

Goldman Sachs Group Inc., Wall Street's biggest investment bank, has turned out some well known former employees. John Thain, who left Goldman to become CEO of NYSE Euronext in 2004, joins a group that includes U.S. senators and White House veterans among its ranks.

Henry Paulson is now Treasury secretary, a job once held by Citigroup Inc. chairman and former Goldman co-Chief Operating Officer Robert Rubin. Jon Corzine is the governor of New Jersey and also was a U.S. senator after serving as chairman and CEO of the investment bank.

Even Thain's replacement at the NYSE — Duncan Niederauer — ran Goldman's equities business. There was also speculation Rubin might have offered Thain the top spot at Citigroup.

Thain's experience at Goldman was seen by many as an asset for Merrill Lynch.

"I think John is a very good candidate for the future," said Win Smith Jr., a former chairman of Merrill Lynch International whose father was among Merrill's founders. "He has a great background, did a good job stepping into NYSE when it had troubled times, and comes out of a firm that has a very strong culture. He can help bring the pride back."

While disappointed the board did not look for an internal candidate, Smith said Thain will lean on his reputation as a consensus builder to win the allegiance of Merrill's army of some 16,000 brokers worldwide. Many felt betrayed by O'Neal, who was forced out of his job after the broker reported a $2.24 billion loss during the third quarter.

The biggest challenge: Help guide Merrill Lynch through the unfolding credit market turmoil that threatens Wall Streets biggest investment houses. The broker took a $7.9 billion write-down during the third quarter — an amount that shocked investors because the broker originally pegged the amount at $4.5 billion.

The crisis shows no sign of abating — analysts expect another $4 billion charge this quarter. Alberto Cribiore, Merrill Lynch's interim non-executive chairman who headed the search to find a new CEO, said Thain is "the right person."

He already has widespread support — from academics to Wall Street analysts. He's viewed as one of the smartest men on Wall Street after his career at Goldman Sachs, where he rose from a bond trader to chief operating officer.

Indeed, the transformation he made at NYSE might serve as the blue print for how to do the same at Merrill Lynch — which faces both media scrutiny and troubled books. At the NYSE, he took over after Richard Grasso was ousted over his controversial pay package.

Not only was he able to rebuild confidence of NYSE board members and workers, but put the exchange on the right track. His acquisition of electronic trading platform Archipelago Holdings Inc. set NYSE up to go public, and then Thain snapped up Euronext to become the world's first trans-Atlantic stock exchange.

Thain, 52, faces the same major challenges at Merrill Lynch.

"You might think he has a tough job ahead of him at Merrill Lynch, don't forget he had the same thing facing him at the NYSE when it was controlled by the old member firms," said Roy Smith, who worked with Thain at Goldman and is now a professor of finance at New York University's Stern School of Business. "He won them over, and now they're among his greatest admirers."

Merrill Lynch ratcheted up a huge loss during the third quarter because of investments in subprime mortgages and other risky types of debt. It joined dozens of other major financial institutions who are getting squeezed as investors steer away from riskier securities, causing credit markets to tighten significantly.

Thain faces a daunting task of cleaning up those investments and reviving morale at a firm badly bruised during the past few months. There has been speculation that a new CEO would be forced to turn around Merrill's fixed income division, a department that he once ran for Goldman in the 1980s.

Meanwhile, he must answer to investors who have been unsettled by a 30 percent decline in the company's stock price. Just the announcement of Thain's appointment sent shares up $1.03, or 1.8 percent, at $57.98.

"I am excited and honored to have the opportunity to lead such an outstanding organization," Thain said in a statement. "I am certain that together we can continue to grow Merrill's global business and add value to our customers and our shareholders."

His appointment ends speculation about Merrill — but Wall Street is still waiting to see who will take over Citigroup. Chuck Prince departed Nov. 4 after the biggest U.S. bank suffered significant write-downs to its mortgage-backed assets.

"The name of the game is risk taking, and the problem is a lot of investment banks have fallen off a cliff by taking too much risk — the guys that are the best at calculating it is Goldman Sachs," said Alois Priker, a senior analyst with Aite Group.

Thain's announcement was unexpected since many insiders on Wall Street thought Merrill would select BlackRock Inc. CEO Larry Fink. O'Neal had dinner with Fink just days before retiring from Merrill Lynch. At that dinner, O'Neal approached Fink about becoming his successor — and Fink had been in talks ever since.

Fink, could not be reached for comment, but a spokesman for Merrill Lynch said "Fink was never offered the job."

Still, Fink is also said to be on the short list of candidates vying for Prince's job at Citigroup. He could not be reached for comment.

With both Merrill Lynch and the NYSE with new leaders, it puts more pressure on Citi to make an announcement of its own. Regardless of if Fink or someone else takes the top spot, it marks an unprecedented time on Wall Street in which CEOs find their jobs on the line.

"If there's more write-offs hidden under the hood of these firms, then there will be more axing going on," Priker said. 

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