There are gray storm clouds hanging over Wall Street this February but Merrill Lynch’s Greg Fleming appears to be weathering the storm. The Securities and Exchange Commission has initiated a formal investigation into whether the brokerage knew more than it revealed to shareholders about the value of its subprime investments prior to announcing the giant write-downs with its third-quarter results. Federal prosecutors have opened a preliminary investigation, leading to speculation that criminal charges could possibly brought against some Merrill executives. But sources at Merrill Lynch say Fleming, who continues in his role as president of the bank after the losses forced the departures of a co-president and the chief executive, was not involved in the businesses reportedly being scrutinized and they do not expect him to be a subject of the investigation.
Will Fleming’s Grasp On High Office At Merrill Lynch Be Undone By Justice’s Criminal Investigation?
By Joe Weisenthal
Legal Experts Doubtful, But The Rumors Persist
Wall Street abounds with speculation that Greg Fleming, who has managed to hold on to his position as sole president of Merrill Lynch through a whirlwind of management changes, might finally be facing a challenge that could shake him out of his elevated position.
Fleming’s presidency has endured the worst losses in the history of Merrill, internal criticism, and alleged pressure from newly minted chief executive John Thain. Although the Justice Department’s investigation is in its earliest stage, rumors are already spreading, both within and outside of Merrill, that the threat of a criminal investigation might bring Fleming down.
Despite rapid changes in the management structure at Merrill Lynch, Greg Fleming has held onto his position as the president of the firm. He has insisted that he will remain the sole president, and resisted any plans to elevate others at the firm to be co-president. But his inflexibility on this point may be imperiling his position, according to people familiar with the situation.
“He’s on the verge of a nervous breakdown,” a source tells DealBreaker. Others dispute this characterization however, saying that Fleming shows no signs of anything like “a nervous breakdown.”
When John Thain took over as chief executive of the bank, one of the very first changes he announced was a flatter management structure. More executives now report directly to Thain, in effect circumventing Fleming’s office. Under Stan O’Neal, the risk management executives did not report directly to the top—a situation which has been blamed for some of the excesses that lead to enormous losses over the last several months.
Fleming, who also serves as chief operating officer and oversees the investment banking business, is said to have dug in as president, and told others that he will not accept a co-presidency with others at the firm. This is seen by many as resisting the flatter structure Thain is putting in place, and may be alienating him from others at Merrill. Perhaps more important, Thain is thought to be chagrined by Fleming’s stance.
“Fleming could have been a team player. He’s still got the investment bank under him,” said one person with knowledge of the dynamics within the firm. “But he went the other way. He saw moving back to being just head of investment banking as a demotion.”
Some feel that the flatter management structure has effectively demoted Fleming already. With the new head of risk management, the top spokesperson, their general counsel, the chief financial officer and the brokerage head of the brokerage arm, among others, reporting directly to Thain, the office of the bank’s president may be superfluous. Last week, both Market Watch and Bloomberg referred to Fleming as the “chief operating officer” of Merrill without mentioning his role as president.
Fleming remains respected as an investment banker at the firm, even by those who are surprised at his alleged inflexibility. He remains youthful, plain-spoken and full of energy, according to people at Merrill Lynch. He is known as a perfectionist and an investment banking star—which is all the more reason his continued grasping to the title of sole president has some feeling “mystified.”
Merrill Lynch would not comment on this story.