A sinking mortgage market is set to expose many major corporations; Merrill Lynch is just one of the many. Reacting to a borderline market meant dismissing two senior executives in its fixed-income division yesterday for Merrill Lynch.
These firings acted on a sign of an aggressive thrust by Merrill†s CEO, E. Stanley O’Neal, who chose to lean towards riskier markets such as subprime mortgages and complex structured investments; such investments are far beyond the ML’s noted area of expertise. These decisions may become a thorn in ML’s side.
One primary executive who was released from his role is Osman Semerci, 39, acted as the head of Merrill’s fixed-income division; he was in this position for just over a year. Until most recently when the shakier than usual creditmarket reared its head, Osman Semerci was believed to be an up and coming star at ML. In addition to Osman Semerci, Dale M. Lattanzio was also relieved of his duties at ML instantaneously. Much like Osman Semerci, Dale Lattanzio acted as the head of structured credit products, which was the point of interest of many of Merrill’s recent investment problems.
Osaman Semerci and Dale Lattanzio’s dismissals are just the tip of the latest signs of demise for major investment banks. After years of gains, followed by years of even bigger losses, senior executives are being held accountable for having surrendered too readily to the credit and buyout rumble. Bear Stearns made the headlines as well, as they fired their co-president, Warren J. Spector, just this past August; in a knee-jerk reaction, How Jenkins chose to ‘step down’ early this week as the chief of UBS’s investment bank in an effort to make the first move; and in February, HSBC fired their head of North American business, Bobby Mehta.
Many banks are reporting losses in this quarter; those banks include Citigroup, who just this week said it would have write off $5.9 billion in the third quarter, which will cut profits by an astounding 60 percent.
Merrill’s, Osman Semerci, a native of Turkey, boasted previous pinnacle postings in numerous parts of Asia and was believed to be among the precursors of young, hard-working and, in most cases, foreign-born executives that ML’s Mr. O’Neal promoted when he took over the role CEO in 2002, and shook up the old team at the firm. Osman Semerci has not made a public statement as of today.
Merrill, who reported its third-quarter earnings in mid-October, will make a pre-earnings statement in the days ahead which will note a shocking $4 billion in mortgage and other structured investments tied to the disturbed credit market.
The news will come on the heels of embarrassment for Mr. O’Neal, who during his time as CEO forced the firm into trendy high-risk areas of the market ranging from subprime to private equity investments, as well as various loans.
Osman Semerci’s promotion followed an abrupt round of firing last July after two senior fixed income executives, Jeffrey Kronthal and Harry Lengsfield were let go without cause. According to sources close to the situation, the person behind the firings did not want to be identified due o the fact that he was not given authorization to speak;, Mr. Kronthal and Mr. Lengsfield were let go because they were told by senior executives at Merrill that they were not risky enough for the firm’s style. A spokesman for Merrill later denied that was the case.
In addition to the latest Merrill dismissals Merrill also told Dow Kim, their past head of trading who left the firm last spring, that he no longer would have access to he office that he had been using at the Merrill; this according to a person briefed on Mr. Kim’s status who did not want to be identified because he was also not authorized to speak. Osman Semerci reported directly to Mr. Kim.
Korean-born derivatives specialist, Kim, who also had a series of amazing promotions under Mr. O’Neal, Kim left the firm last spring to start a hedge fund; a departure that at the time was noted as amicable.
Besides giving Kim office space at Merrill, Merrill also said they would invest in hedge fund, referred to as Diamond Lake Capital. According to the person briefed on the situation, Mr. Kim was told just this week that Merrill would no longer consider investing in his hedge fund.
This summer revealed obvious trouble for firm’s exposure to subprime mortgages and securities, tied to bands of risky assets, or major debt obligations, would result in a huge loss for; as a result, Mr. Kim’s stature at the firm deteriorated quickly.
Mr. Kim also oversaw the $1.3 billion acquisition of First Franklin just before the collapse of the housing bubble burst last year.
Whenever the write-downs are officially announced, they will publicly serve as a reminder of what can happen to firms when they wander away from their primary areas of competence. 1989 should have served as Merrills in-house lesson as that year, Merrill wrote down $470 million from losses in high yield investments. As it currently stands, Merrill will take an unexpected $4 billion charge from its venture into credit markets.
Mr. O’Neal might be taking the credit for cutting costs and making the firm more agile and resourceful, he is widely criticized for the infamous ousting a large number of experienced and promising executives, only to replace them with younger, less experienced individuals such as Osman Semerci.
Mr. O’Neal is revered as a man with amazing intellect; he is also known thought to be aloof in his management style, which likely led to the younger executives assuming a responsibility they simply were not ready for.
The question remains as to whether or not Mr. O’Neal currently has the right executive team in place to see the firm through this rocky time in the market.

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