All the Devils Are Here [198]
The board members were stunned. Their anger turned to fury. Some began grilling O’Neal on Merrill’s exposure; others complained that his approaching Wachovia was a terrible breach of corporate etiquette—a CEO is supposed to get a board’s permission before approaching another company. “Their reaction was vitriolic,” recalls one participant. “I’ve never seen that kind of interplay between a CEO and a board of directors.” The board had zero interest in pursuing a merger with Wachovia.
“I’m on the board of a public company now,” Komansky told The New Yorker. “If I thought the CEO was out trying to sell the company, I’d have a hard time having confidence in that fellow.” Well, maybe. But while O’Neal’s bedside manner may have been lacking, he was doing exactly the right thing in trying to sell Merrill Lynch. This time, it was the board that was in denial.
The board meeting took place Sunday and Monday, October 21 and 22, 2007. It wasn’t a lot of fun; the board had lost confidence in O’Neal and he was smart enough to see it. And the numbers Merrill was about to unveil were truly ugly. On Wednesday, October 24, the earnings were released. Merrill Lynch announced a net loss of $2.3 billion, which included a write-down of $7.9 billion in subprime mortgage securities.19 “The bottom line is, we got it wrong by being overexposed to subprime, and we suffered as a result of an unprecedented liquidity squeeze and deterioration in that market.” O’Neal accepted the blame.
The following evening, Jenny Anderson of the New York Times began calling and e-mailing various board members and executives, trying to confirm a rumor she had heard. She got Fleming on his cell phone around seven thirty. After a few pleasantries, she said one word to him: “Wachovia.” He gave her a quick “No comment” and got off the phone. But another source, later that evening, confirmed O’Neal’s approach to Wachovia, and she had the story in the paper the next day. O’Neal was already hanging by a thread; that story finished him off.
On October 29, four days after the Times broke the news of his approach to Wachovia, Stan O’Neal was gone. He took with him $161 million in retirement benefits and Merrill Lynch stock, feeling at once embittered, embarrassed, and frustrated. “I should have known better,” he told Fleming bitterly, shortly before he resigned. After he was gone, though, it wasn’t his mistakes he dwelled on, but the mistakes of the men he had surrounded himself with: Fakahany, Semerci, and Kim. He had trusted them and they had let him down. He never seemed to understand that he himself had planted the seeds of destruction by placing his trust in the wrong people. “The fixed income guys got us in ’98, and I swore they would never do it again,” O’Neal used to say, referring to the Long-Term Capital crisis. “But they did it again.” For this, he had only himself to blame.
Eleven months after his ouster, though, O’Neal got a small measure of satisfaction when Merrill was sold to Bank of America, for $29 a share, during the most traumatic weekend of the financial crisis. O’Neal sent Cribiore an e-mail, according to Fortune. “My former friend,” it read, “you should have helped me sell this business when we had the chance.”
A final coda: Not long after O’Neal was safely out the door, Greg Fleming brought Kronthal back to Merrill Lynch to help clean up the mess. The first day he walked out onto the trading floor, all the traders stood as one and cheered.
21
Collateral Damage
On July 11, 2007, two executives at AIG-FP had a private phone conversation to discuss their company’s subprime exposure. One of the executives was Andrew Forster, the Cassano deputy who had helped persuade his boss to stop writing new credit default swaps on triple-A tranches of multisector CDOs at the end of 2005. He was in AIG’s London office. The other man was Al Frost, who had helped lead AIG-FP into the business and who had marketed dozens of credit default swap deals until the spigot was turned off, at