Stan O’Neal became president of Merrill Lynch in 2001 and by 2003 had become the firm’s CEO and chairman. As CEO, he attempted to get rid of the ‘Mother Merrill’ culture of job security, arguing that it promoted cronyism instead of merit. He also wanted to transform Merrill into a trading powerhouse, so it moved into the subprime mortgage-backed collateralized debt obligation (CDOs). Between 2001 and 2003 O’Neal oversaw 24,000 redundancies, while pre-tax profit margins rose from 22% to 28%.
As the CDO market grew this pushed the firm from $5 to $6 billion worth of exposure to $55 billion in under one year. Merrill was one of the top CDO underwriters of the boom era.
O’Neal was described as a manager who “had never been the kind of CEO who walked the trading floor”, so he failed to appreciate the seriousness of the situation. During August and September 2007, as the sub-prime crisis swept through the global financial market, Merrill Lynch announced losses of $8 billion. O’Neal approached Bank of America and Wachovia Bank about a possible merger, without first obtaining the approval of Merrill’s Board, so on 30 October 2007, was forced to resign. Merrill Lynch was merged with the Bank of America in September 2008.
It is said Stan O’Neil earned $48 million in 2006, and $46 million in 2007. He left with a severance package including Merrill stock and options worth $161.5 million on top of the $91.4 million in total compensation he earned in 2006. O’Neal became an Alcoa director in January 2008.