Wall Street's rumor mill went into overdrive on Friday as several media reports suggested that investment bank Merrill Lynch was poised to oust its embattled chief executive Stan O'Neal.
O'Neal was already in the hot seat after the bank and brokerage disclosed on Wednesday that it had been forced to write off a staggering US$7.9 billion in investments largely due to soured bets on mortgage-backed securities.
The media reports said O'Neal, who has been Merrill Lynch's CEO since 2002, further undermined his position by recently directing another executive to moot the possibility of a merger with Wachovia bank without consulting Merrill's board of directors.
The New York Times reported, citing people close to the firm, that Merrill's board was so "upset" by O'Neal's actions that it discussed the names of potential candidates to replace him.
Two of the names circulated by directors were reportedly Laurence Fink, chief executive of BlackRock, an investment firm partly owned by Merrill, and John Thain, chief executive of the New York Stock Exchange.
"At worst, it makes it look as if Merrill Lynch thinks it has a real crisis on its hands from which it won't rebound in short order," said Patrick O'Hare, a market analyst at Briefing.com.
"At best, it sets up O'Neal to play a hero's role as he gets the ball rolling on a deal that would make shareholders feel whole again," O'Hare said.
The investment bank's stock soared 8.5 percent to close at US$66.09 in the wake of the Times report highlighting the approach to Wachovia.
Wachovia's stock finished up 3.2 percent at US$46.54 amid wider market gains.
A separate report by CNBC, the television business news channel, said O'Neal had informed close colleagues that he was likely to be ousted as Merrill's CEO in the coming days.
CNBC said O'Neal's future had been throw in doubt because of Merrill's mounting financial problems.
Analysts at rival investment bank Goldman Sachs said in a research note released on Thursday that Merrill could be forced to write-down a further US$4.5 billion during the fourth quarter due to soured investments in mortgage-backed securities.
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