In late 2001, Winthrop H. Smith Jr., a senior Merrill Lynch executive and son of one of the firm’s founding partners, walked into the office of his just-appointed boss, E. Stanley O’Neal, ready to accept a new job he was being offered.
Mr. Smith had just been removed from his position as chairman of Merrill Lynch International and head of firm’s brokers outside the United States, and Mr. O’Neal was asking him to serve as a banker to the firm’s biggest clients globally.
It was a nice perch but a bit of a comedown compared with his last job. So before he said yes, Mr. Smith, who has long seen himself as a guardian of the firm’s cultural mores, asked Mr. O’Neal whether he would remain true to Merrill’s principles of teamwork, integrity and client focus.
“As soon as I asked the question, he launched into a diatribe about all that was wrong with ‘Mother Merrill’ and how we had to raise our standards and get rid of all the incompetent people who had been kept around. We’ve got to get rid of nepotism.â€
As Mr. Smith would go on to explain in “Catching Lightning in a Bottle,†his self-published and deeply personal history of the rise and fall of Merrill Lynch, he would refuse the job, thus ending a 28-year career at the firm.
If Mr. O’Neal had held true to the principles that were put in place by Mr. Smith’s father and subsequent Merrill leaders, Mr. Smith argues, then the firm would never have become so exposed to the risky mortgages that forced it into a shotgun merger with Bank of America in 2008.
This is the framework that Mr. Smith uses to tell his story, and the flame of his anger for Mr. O’Neal holds true and steady from the beginning of the book to its end â€" a photo collage of all Merrill’s chief executives in which Mr. O’Neal, the first black man to lead a major Wall Street firm, stands starkly apart.
The anecdote is a delicious one, and there are many more in this quite readable book, the result perhaps when a Wall Street insider tells all. But what makes the story especially revealing is what it says about these two men â€" more or less equal in age but polar opposites in every other respect â€" and it highlights the divide between Merrill’s old guard and new that would lead to the end of its century-long run as an independent company.
By alienating Merrill’s leading culture carrier at a time when he was making radical changes throughout the company, Mr. O’Neal helped give voice to all those who opposed his reforms. As for Mr. Smith, who was not overseeing a large profit center at the bank at the time, the idea that he would administer a litmus test to the firm’s next chief executive seems fairly ambitious at best. (At the time of the encounter, Mr. O’Neal was president of Merrill. He would not become chief executive until 2003.)
To be sure, Mr. Smith is not the first person â€" inside the firm and out â€" to point a finger at Mr. O’Neal. Under his reign, thousands of executives, senior and junior, would lose their jobs, and Mr. O’Neal’s headlong plunge into subprime mortgages resulted in the steepest losses in the firm’s history.
Mr. Smith also criticizes Mr. O’Neal for cutting a deal with prosecutors over the firm’s dealings with Enron, a move that resulted in Merrill bankers going to jail on charges that were eventually dropped.
But Mr. Smith’s fervent belief that Merrill, under a different chieftain, would not have joined the race to emulate Goldman Sachs by jumping into all sorts of profitable but high-risk trading areas is open to question.
Indeed, even Mr. O’Neal’s defenders recognize that the mortgage bet was a disaster, although they point out that except for JPMorgan Chase and Goldman Sachs, pretty much every big firm on the street either died or had a near-death experience.
“It is clear that Merrill’s management along with the rest of industry called the mortgage market wrong, and no one has been tougher on themselves than Stan,†said Jason H. Wright, a top adviser to Mr. O’Neal at Merrill.
But Mr. Wright disputes the view that Mr. O’Neal’s move to change the culture of the firm by promoting a new vanguard of leaders resulted in the firm’s demise.
“To the extent that Mother Merrill emphasized a sense of community, Stan was for it,†he said. “But to the extent that emphasized a sense of paternalism and a club of insiders who ran the show â€" that, Stan felt, was in need of updating.â€
The book should not be read as an objective history. In fact, the stories that Mr. Smith tells about the firm’s early days and the extraordinary insights and vision that the early partners had in bringing stocks and bonds to Main Street resonate all the more in light of his own familial ties.
But when it comes to Merrill’s implosion, the book could have benefited from some more perspective from those running the show at the time. Indeed, all the criticism of Mr. O’Neal â€" from excessive use of the company helicopter to excessive golf â€" becomes a bit repetitive after awhile.
Reached briefly by phone, Mr. O’Neal declined to comment. Indeed, outside of a single magazine article several years ago, has has said little. Nor does he seen to be doing much these days, outside of serving on the board of Alcoa.
But rumors still abound that he may tell his own story about how the grandson of an Alabama slave ascended one of Wall Street’s highest peaks only to tumble down from it shortly thereafter. If so, it would be a fitting companion to Mr. Smith’s work.
