The Hindu Business Line : The end of Stan

Honestly, I have no idea what I should be feeling. One moment everyone is gushing about the 20,000-mark and the highest point in Sensex history. But, then, looming in the background is the unspoken sentiment that all this is a little bit insane and will come crashing down one day or the other.

(This is not so good for people like me with friends in the investment banking business. Yes, they are happy. But, no, they won’t take you out to dinner at the Taj yet.

Writing off

Now, the bogeyman of the season — sub-prime mortgages — raises its head again. And there is bloodshed everywhere. First, last week, Merrill Lynch revealed it was writing off more than $8 billion in assets. Then came troubled news at CSFB and, finally, now, we hear that Citi may have to write off a fair bit as well.

(I can never get the hang of this writing off business. Can I do this to my electricity bill? “Hello BEST? Just to inform you that November 2007 has been written off. Yes completely. Thanks.”)

Running for cover

“When Citi catches a cold, the world sneezes!” goes the new adage I just made up now. And, boy, are emerging markets sitting and hacking and wheezing and hyperventilating away or what? As I sit in front of the TV in my official freelance writer garb (lungi and fresh air) I can see that Japan, China, Chile, Brazil and such markets are running for cover.

The Sensex, bewilderingly, is looking unaffected.

I give up really. I have no idea how the Sensex works. Nor do the people on TV, by the looks of it. (You know they are kite-flying when they start talking about the “India story” in long sentences without verbs in them.) But back to our bogeyman: Sub-prime mortgages and collateralised debt obligations (CDOs).

No secret that bankers sitting at mortgage desks are busy polishing up their resumes. While those who struggled at erstwhile less lucrative desks now have ear-to-ear grins plastered on their faces.

And the latest addition to the list of casualties due to the sub-prime crisis in the US is Stan O’Neal, the erstwhile CEO and Chairman of Merrill Lynch. After a few days of gossip and “Psst! Have you heard?” phone calls, Merrill Lynch finally announced on October 30 that Stan had resigned and would bid farewell to ML with a useful $160 million in his pocket. (I am assuming they wrote that off as well.)

The story

That brings to a close, perhaps temporarily, a most remarkable story.

Wedowee, Alabama, is one of the most unlikely birthplaces for the CEO of one of the world’s biggest financial institutions. With less than 1,000 residents, Wedowee is a tiny rural farming community in the State of Alabama, US. Stan O’Neal was born in Wedowee in 1951. His resourceful father soon moved to Atlanta to work on the assembly line of a General Motors plant.

Stan worked on the line himself as a teenager before the people at GM noticed his sharp intellect. The boy was picked up from the line and, then, years later, emerged out of Harvard with an MBA in 1979, with a little help from a GM scholarship.

O’Neal went from an analyst to a Director at GM in just three years. (This is identical to my career as well. In just three years, I went from analyst to freelance writer as well. Well, not exactly identical, perhaps.)

Million, bonus, dollar

ML picked him up from GM in 1986. His astronomical professional growth continued and he was made CEO and Chairman of Merrill Lynch in 2003. Not bad for an assembly-line blue-collar type. Till the recent debacle and his eventual ousting, Stan did not do badly. The Street loved him. His board loved him to death. He made at least $55 million in bonuses in the last two years. (You have no idea how much it hurts a freelance writer to use the words million, bonus and dollar in the same sentence when referring to someone else.)

And, then, things fell apart. First ML took that huge write-off and then declared that it made a $2.2 billion loss for the quarter.

Soon after that, O’Neal apparently did something stupid. He discussed merging Merrill Lynch with another bank, Wachovia, without telling his own board. (This is like changing the curtains without telling the wife. Only much less serious.) Finally, two days ago, on October 30, Stan resigned. Wink! Of his own accord. Nudge! Merrill Lynch did not ask him to leave. Wink! Nudge!

So, Stan’s story did not exactly end in glory, if you ask me. But still not bad at all! One hundred and sixty million big ones. Multiplied by forty. Sigh!

(The author, an alumnus of IIM-A, was a management consultant before quitting to work as a freelance writer, author and general handyman. He blogs at www.whatay.com )

More Stories on : People | Stock Markets | Young Investor

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page