NYSE chief is chosen to lead Merrill Lynch

Now, he faces what could be a more formidable challenge: turning around Merrill Lynch, the once-proud Wall Street firm battered by losses from the mortgage debacle. Wednesday, Thain, who had risen to co-president of Goldman Sachs but left for the stock exchange, was named chairman and chief executive of Merrill, where he will compete against his former colleagues.

Repairing the reputation of Merrill, one of the biggest casualties of the recent turmoil in the financial markets, will test the financial and political mettle of Thain, 52. Merrill’s former chief executive, E. Stanley O’Neal, was forced to resign two weeks ago after announcing an $8.4 billion write-down and approaching a rival bank to discuss a merger. Although Thain’s name was on a short list of candidates from the start, his hiring still took Wall Street by surprise.

Many top-level executives had expected that the job would be offered to Laurence Fink, the founder of BlackRock, a large investment firm partly owned by Merrill. But according to people briefed on Merrill’s decision, Thain was selected, not just because of his success at the exchange but also because of his understanding of risk management systems at Goldman, which has largely avoided the problems plaguing its rivals.

Merrill directors personally wooed Thain at his home in Rye, New York. At 5 p.m. Sunday, Ann Reese, a Merrill director who lives nearby, stopped by his house for a cup of English tea. For two hours, she and Alberto Cribiore, the firm’s interim nonexecutive chairman, encouraged Thain to join the firm. Thain had also met with members of a search committee seeking to fill the top job at Citigroup, whose chief executive, Charles Prince III, resigned in the wake of multibillion-dollar write-downs related to subprime mortgages.

Fixing Merrill’s problems will take some time, Thain said Wednesday, because the issues troubling the overall mortgage market are likely to continue for another 6 to 12 months. „We have not seen the bottom,” he said. Thain went to the NYSE in 2004 and is widely credited with modernizing and expanding the 215-year-old exchange. He stepped into turmoil there, including a scandal over the $187.5 million pay package of Richard Grasso, the former chairman, and a federal investigation into trading practices.

Slightly more than a year after he arrived, he executed a deal to merge with Archipelago, an all-electronic platform, converting the nonprofit institution into a public one. He then took on the Deutsche Börse to win Euronext, a pan-European exchange, which ultimately merged with the New York Exchange. „The exchange was in flux and he resuscitated the place with the acquisition of Archipelago and the merger with Euronext,” said John Jakobson, a former member and a current shareholder.

„It was on life support then, and it’s in first-rate condition today.” The exchange went public in March 2006 at $67 a share; it closed Wednesday at $78.69. While Thain boasts an impressive résumé, he is known more as an analytical technocrat. While he was not popular on the exchange’s floor, analysts say he was respected. For example, the Archipelago deal was criticized when announced, but he ultimately got traders to vote for it. „He’s articulate and can consensus-build,” Richard Repetto, an analyst at Sandler O’Neill, said. „He had to deal with members as they saw their jobs become extinct.”

Thain started his career at Goldman as an investment banker and went on to work in mortgage securities, ultimately running the desk in the late 1980s. In 1994 he was promoted to chief financial officer and head of operations, technology and finance. In 2003, he became co-president and co-chief operating officer with John Thornton. He was considered a candidate to run Goldman Sachs after Henry Paulson Jr., now the Treasury secretary. But Thornton left Goldman and Lloyd Blankfein, then the head of the firm’s powerful fixed- income group, was on the ascent.

Thain, when he was contacted by John S. Reed, opted for the chance to run the exchange. (Blankfein now runs Goldman.) Thain now faces a formidable task at Merrill. Under O’Neal, the bank aggressively entered into new and riskier businesses, including underwriting collateralized debt obligations, originating subprime loans and expanding its proprietary trading operations. O’Neal also reached out to G. Kennedy Thompson, the chief executive of Wachovia to explore a merger, an approach that might have been acceptable if the board had not been reeling from the magnitude of the loss. After the merger approach became known, O’Neal was forced to resign. (iht – read more)