Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research) on Wednesday named NYSE Euronext (NYX.N: Quote, Profile, Research) Chief Executive John Thain as its new CEO, bringing in an outsider with a Goldman Sachs pedigree to repair an image battered by wrong-way bets on sub prime mortgages.
Thain, 52, replaces Stan O'Neal, who was ousted as Merrill's CEO and chairman late last month after the company wrote down $8.4 billion in assets during the third quarter. Thain was a Goldman Sachs (GS.N: Quote, Profile, Research) senior executive for several years before joining NYSE in 2004.
Thain has no experience running a large retail brokerage akin to Merrill, which has more than 16,000 brokers, or about one-fourth of its work force.
"The key will be getting the heads of the private client business and the more senior brokers to commit to the new management," Deutsche Bank analyst Mike Mayo said.
Thain's appointment is effective December 1, Merrill said. One of his first tasks will be to assess Merrill's risk management procedures, which analysts said clearly failed in evaluating exposure to subprime mortgages and collateralized debt obligations. Some analysts expect further write-downs at Merrill, with estimates of up to $10 billion on remaining CDO and subprime exposure.
Thain told CNBC television he is not inclined to quit the CDO and mortgage markets, but Merrill needs to manage its risk properly. He said further write-downs in the financial services industry are possible because of continued pricing pressure.
"John will be adept at balancing the focus on risk management and controls while taking the steps necessary the company evolves and grows," Merrill non-executive chairman Alberto Cribiore said in a statement.
Before Thain's appointment became official, analysts and investors gave him high marks.
"We believe he would be a very good team builder and unifier, as well as operator," said David Katz, chief investment officer at Matrix Asset Advisors in New York. "We look at this as a home run for Merrill."
Merrill shares are down 38 percent this year, erasing about $31 billion in shareholder value at the world's largest brokerage.
Thain's hiring removes him from consideration for the top job at Citigroup Inc (C.N: Quote, Profile, Research), where he had been viewed as a leading candidate. The largest U.S. bank is seeking to replace Charles Prince, who resigned November 4 as Citigroup forecast an expected $8 billion to $11 billion fourth-quarter write-down tied to subprime mortgages.
In the third quarter, Merrill posted a $2.3 billion loss, mostly because of bad bets on subprime mortgage-related assets. It was the worst loss in company history, triggering the ouster of O'Neal, who pushed the company into new businesses and measured company progress by using Goldman Sachs as a benchmark.
Thain, who was educated at Harvard Business School and the Massachusetts Institute of Technology, worked at Goldman Sachs for more than 20 years in a number of senior executive roles before NYSE appointed him as its top executive.
At NYSE, he accelerated the Big Board's adoption of electronic trading and converted the nonprofit club into a publicly listed company. And last year, he merged NYSE Group with Euronext to build the first trans-Atlantic exchange operator.
Before joining NYSE, he served as Goldman Sachs Group Inc's president and chief operating officer.