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Stan O'Neal Speaks, Clarifies The Whole Destruction Of Merrill Situation, Explains What The CDO Problem Felt Like ("Being Punched In The Face...Kicked In The Balls")

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A lot of people are of the mind that many of the decisions made by Stan O'Neal were responsible for the fall of Merrill Lynch. Decisions such as the ones to fire very senior, long-time employees once he was named CEO, take on a massive amount of risk, perhaps more than was, let's just call it "prudent," in the name of profit, etc, etc, etc. The fact that he increased ML's investments in CDOs from around $1 billion to around $40 billion (-ish) in about 18 months or so, which caused the bank to writedown $8 billion (give or take a few mill) in October 2007, and book its largest quarterly loss ever ($2.24 billion) are things such people cite when they make this argument. But here's another theory, which is being tested out this morning. Tell me what you think of it: None of this was Stan O'Neal's fault.

Now, before you jump down my throat, hear me out. This lesser known interpretation of facts comes from someone extremely familiar with the firm, and events that transpired during the O'Neal era. Someone who could tell us, definitively, if we've been wrong all along about the former CEO. Obviously, I'm talking about Stan O'Neal.

Stanny, together with William Cohan, explains how contrary to what you've probably all thought, Mr. O'Neal is a hero. At least he tried to be, but was sadly cockblocked by a MER director named Alberto Cribiore. According to O'Neal, here's what really went down. First off, all that shit he put on Merrill's books? At first he didn't realize how bad it was, but one day in late August 2007, when he was vacationing at his summer home on Martha's Vineyard, it all became crystal clear. Once he got back to the city (no need to cut the weekend short), O'Neal told Cribiore that they had a "serious and deep problem," and that he wanted to sell Merrill. The CEO took a meeting with Ken Lewis and told the Bank of America chief he wanted $100 a share. As E. Stan remembers it, Lewis said "I'm not saying no, but that just requires X amount more dollars of cost-cutting." In Too Big To Fail Andrew Ross Sorkin recounts that O'Neal added that he wanted to make sure he'd still have a gig if the deal went through. TBTF additionally notes that Lewis thought Big Stan was a dick and the odds of a deal happening at that time were slim to none. Nevertheless! In O'Neal's retelling of history this morning, he vividly remembers that "BofA wanted this deal."

Unfortunately, the noted golfer claims, Cribiore told him no dice.

It was clear to O'Neal that Cribiore did not like the idea of selling Merrill one bit. "But Stan, Ken Lewis is an asshole," O'Neal remembers Cribiore saying. He says he doesn't think Cribiore knows Lewis personally. "It was shorthand for a perception that Bank of America is like the dark empire," O'Neal says. That was it. For O'Neal, Cribiore's comment spelled the end of any chance he had of selling Merrill to BofA. O'Neal never called Lewis back, despite the allure of a $100-a-share deal. How could O'Neal, a powerful CEO, have wilted that easily -- and not even taken the idea to the full board?

Good question!

O'Neal responds: "Alberto was the most knowledgeable person on the board by far about investment banking and about all the issues that we were talking about. If Alberto didn't buy the argument, there was no way I was going to be able to sell the argument to anybody else. And this was a very low-key discussion in his office with no pressure, nobody else listening."

Oh, okay (BTW: Cribiore told Cohan he has "no recollection of discussing a possible sale." Same diff, no diff). What happened next, thanks to Alberto's pigheadedness and whatever Jedi mind tricks he played on Stan, was the disastrous quarterly earnings, and O'Neal's canning. After the sale to BAC a year later, Stan apparently sent an email to Cribs that said: "My former friend, you should have helped me sell this business when we had the chance."

So, anyway! Whether or not you are buying this story, I think we can all just appreciate the fact that now that Stan O'Neal is speaking, we have stuff like this to appreciate:

The CDO problem in 2007 left Merrill, as O'Neal puts it, like "a fighter in the middle of the ring with your hands tied behind you and an opponent, whenever he chose, could just whale away on you, punch you right in the face. And there was no referee, so he could kick you in the balls, give you an elbow to the chin and you could do nothing except stand there until he decided he was tired or finished or beneficent or whatever it was and turned away and walked out of the ring. That seemed to me to be unbearable. We had to have alternatives."

Merrill Lynch's $50 Billion Feud [Fortune]