All the Devils Are Here [197]
During August and September, Semerci methodically downloaded all his e-mail correspondence to O’Neal, Fakahany, Kim, and other top executives. Then, for reasons that people at Merrill Lynch still don’t understand, he withdrew from the bank almost $10,000 in sequential hundred-dollar bills, and taped the money into one of his desk drawers. He did the same with a Turkish passport—a passport he had never registered with the firm, as executives are supposed to do. (When he traveled for the company, he used a UK passport.)
Semerci’s office was on the seventh floor. He was brought to the thirty-second floor to be fired. After the deed was done, and he was being escorted out of the building and into a waiting car, he told the HR personnel who were guiding him out of the building about the money. He asked that he be allowed to leave with it. Someone went to find the bills and gave them to him when they got outside. He also called his secretary, told her about the passport, and had her slip it into his jacket, which he had left in his office. She met him by the car and handed the jacket to him. With his money and his passport, Semerci flew to London, where he now operates a hedge fund.
Fleming, meanwhile, brought Breit and another risk manager back from exile and gave them the task of sorting out Merrill’s CDO business. Incredibly, it was the first time anyone at Merrill Lynch, independent of the traders themselves, had attempted to put a value on the firm’s massive CDO exposure.
Two days after Semerci and Lattanzio were fired, Merrill Lynch “preannounced” its earnings, telling investors, in advance of its third-quarter earnings call, that it would be taking a large write-down in its subprime mortgage book, which it estimated at around $5 billion. It was going to be the largest trading loss in Merrill’s history. This was the first investors would hear about Merrill’s subprime exposure—indeed, it directly contradicted everything Merrill had said previously about its CDO portfolio and its risk management capabilities. The stock plunged.
A few weeks later, O’Neal met with the board to go over the third-quarter numbers. In the intervening weeks, new executives who had been installed in the mortgage departments had concluded that the firm should use more pessimistic assumptions in coming up with its CDO valuations. They recommended a write-down of $8 billion instead of $5 billion.
In the days prior to the meeting—and despite the earlier, negative reaction from Cribiore about his having approached Ken Lewis—O’Neal had sounded out a second CEO about a possible merger: Ken Thompson of Wachovia. Like Lewis, Thompson was receptive. O’Neal thought a Wachovia merger would be more palatable to the board; Merrill was the bigger name, unlikely to be subsumed the way it would be in a Bank of America deal. O’Neal decided he would use a dinner with board members to make the case for a merger.
On their way to the board dinner, Fleming counseled O’Neal on how to approach the board. “You have to walk them through this,” he said. “You can’t just tell them we need to sell the company. They aren’t going to buy it. The company was performing tremendously until this quarter. That’s how they are viewing it.”
Shooting him a suspicious look, O’Neal responded, “Why are you saying that? Who are you talking to?”
“I haven’t talked to anybody,” replied Fleming. “I’m an investment banker. This is what I’ve done my whole career.”
But that kind of gentle persuasion just wasn’t in O’Neal’s toolkit. The dinner itself was “frosty,” according to one participant. The directors were angry. “There was no small talk, no humor.” The board members were served their food, and practically before