Crash of the Titans

Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America

Fortune.com Excerpts “Crash of the Titans”

Fortune.com today excerpts a key time period in "Crash of the Titans" — the events in October 2007 that led to the dismissal of then Merrill Lynch CEO Stan O'Neal (at right). You can read the full excerpt here, or read the excerpt of the excerpt, below: 

"On the morning of Friday, October 5, the firm's top finance people and O'Neal huddled to go over the final language that would be part of the earnings warning sent out just after 9 a.m. The finance group, headed by CFO Jeff Edwards, had come up with the $4.5 billion number for the write-down on the firm's CDO [collateral debt obligations] portfolio. Once the language was in place, the group dispersed, in the belief that the work was done.

But after a subsequent discussion involving Gary Carlin, who headed Merrill's internal controls, Edwards and the investor relations people decided to err on the side of caution and tell investors that the CDO write-downs related to an 'incremental' impact in the quarter. At 9:06 a.m., the announcement went out on the wires. Sometime around 9:07 a.m., O'Neal called Eric Heaton, the treasurer, and screamed at him, demanding to know who had inserted the word 'incremental' in the release. Normally a man of calm and businesslike demeanor, O'Neal laced his tirade with derivatives of the word 'fuck,' which seemed out of character. Then the CEO turned his fury on Edwards, unleashing another fusillade of f-bombs on the CFO, whom he blamed for adding the word 'incremental.' The earnings warning was supposed to let investors know that Merrill Lynch was on top of its problems, O'Neal hollered. Using a qualifier like 'incremental' suggested that the firm didn't even know how bad its problems were."

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Author, Greg Farrell

GREG FARRELL is a correspondent for the Financial Times. In January 2009, he broke the news that Merrill Lynch had paid out its 2008 bonuses a month ahead of schedule, in December, even though Merrill was in the process of losing $28 billion for the year, and Bank of America needed an extra $20 billion in taxpayer funds to complete its acquisition of the firm. That story sparked an investigation by New York attorney general Andrew Cuomo. Greg is a past winner of the American Business Press’s Jesse Neal Award for investigative reporting and a recipient of the Knight-Bagehot Fellowship for business journalism. He earned a BA from Harvard University and an MBA from the Graduate School of Business at Columbia University.