All the Devils Are Here [196]
O’Neal would later tell Fortune magazine that Merrill was like “a fighter in the middle of the ring with your hands tied behind you and an opponent, whenever he chose, could just whale away on you, punch you right in the face. And there was no referee, so he could kick you in the balls, give you an elbow to the chin, and you could do nothing except stand there until he decided he was tired or finished or beneficent or whatever it was and turned away and walked out of the ring.” He added, “That seemed to me to be unbearable. We had to have alternatives.” The only alternative that made sense to him was a merger.
By the middle of September, O’Neal was talking to Merrill’s board members about the firm’s exposure to subprime risk. The directors were startled. Previously, they had always been told that Merrill’s subprime risks were minimal. Now they were hearing, for the first time, that the firm’s estimated loss was more than $1 billion. The board hired its own outside lawyer to advise it. A number of directors asked for tutorials on CDOs.
Even more startling to the directors was O’Neal’s demeanor. Almost overnight, he had gone from appearing unworried about Merrill’s subprime exposure to being deeply and openly pessimistic. People who saw him in the office said he appeared to be depressed. It was such a startling about-face that the Merrill directors had a difficult time taking him completely seriously. It was not that they didn’t think Merrill had a problem; it was that they thought O’Neal was panicking. But he wasn’t. This time, O’Neal was dead right.
In September, O’Neal arranged a secret meeting with Ken Lewis, the CEO of Bank of America, at the Time Warner Center in midtown Manhattan. O’Neal knew that Lewis had long lusted after Merrill Lynch—and, as his earlier purchase of Countrywide had shown, Lewis couldn’t say no to an acquisition he wanted. Ever since O’Neal had realized the depths of Merrill’s problems, he had been holding private conversations with Lewis about a possible deal. He had done so without informing any of his lieutenants or the Merrill Lynch board—O’Neal wanted to be able to go to them with a deal in hand. Lewis had even thrown out a number: $90 a share. At the secret meeting, O’Neal suggested bumping the price to $100. Lewis didn’t object.
It was after this meeting that O’Neal finally decided to sound out a board member about a possible merger with Bank of America. The director he spoke with was an old friend, financier Alberto Cribiore, whom O’Neal had put on the board in 2003. His response was extremely negative. “But Stan, Ken Lewis is an asshole,” replied Cribiore, according to the account O’Neal gave to Fortune. (Cribiore would later say he didn’t recall this conversation, but other Merrill executives back up O’Neal’s version.) Cribiore didn’t like the idea of Merrill Lynch losing its brand and identity to a bank based in Charlotte, and he still didn’t think it was necessary. He thought Merrill should raise capital and take a big write-down—exactly what O’Neal felt the company shouldn’t do. Strangely—and perhaps this had to do with O’Neal’s mental state—O’Neal concluded that if he couldn’t bring Cribiore around, he wouldn’t be able to bring any of the directors around. So instead of taking the deal to the full board, he dropped the idea. As the other directors found out he had approached Ken Lewis but never informed them, they were furious.
In early October, O’Neal finally did something he should have done much earlier. He fired Semerci and Lattanzio. The week before he was let go, Semerci received an e-mail from Fakahany praising