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Merrill sacks 2 top execs over mortgage crisis

Firings show more bankers are being held liable for failed investments

NEW YORK – MERRILL Lynch, facing the prospect of losing billions from its exposure to the sinking United States mortgage market, fired the global chief of its fixed-income division and one of his top two American deputies.

The dismissals are the latest sign that investment banks, facing big losses after years of big profits, are moving quickly to hold senior executives accountable for having succumbed too readily to the credit and buyout boom.

Bear Stearns fired its co-president, Mr Warren Spector, in August; Mr Huw Jenkins stepped down early this week as the chief of UBS’ investment bank; and in February, HSBC dismissed the head of its North American business, Mr Bobby Mehta.

The firings also signalled that the aggressive push by Merrill’s chief executive (CEO), Mr Stanley O’Neal, into riskier markets like leveraged loans, sub-prime mortgages and complex structured investments – all of which lie beyond the firm’s traditional areas of expertise – may be coming back to haunt him.

Merrill is expected to make a pre-earnings announcement in the coming days that it will write down more than US$4 billion (S$5.92 billion) in mortgage and other structured investments tied to the beleaguered credit market.

Several banks have also reported large write-downs in the quarter, including Citigroup, which this week said it would write off US$5.9 billion in the third quarter, causing its profit to drop 60 per cent.

The write-down will come as an embarrassment for Mr O’Neal, who during his time as CEO pushed the bank into in-vogue, high-risk areas of the market ranging from sub- prime to private-equity investments, as well as loans.

The focus was a departure for Merrill, a company that has traditionally looked to its legion of more than 15,000 brokers for both its financial and cultural strength.

But in recent years, as Goldman Sachs continued to generate extraordinary profits from its proprietary trading and principal investment units, Merrill, along with other companies, took steps to increase its risk profile.

One of those axed at Merrill was Mr Osman Semerci, 39, the head of its fixed-income division. He was among the vanguard of young, hard-charging and, in many cases, foreign-born executives that Mr O’Neal promoted when he became CEO in 2002 and shook up the old guard at the firm.

Mr Semerci had been in the position for little more than a year when the meltdown in the credit markets began.

Also let go was Mr Dale Lattanzio, 43, who was the head of structured credit products, the locus of many of Merrill’s recent investment problems.

While Mr O’Neal has received credit for cutting costs and making the firm more nimble and efficient, one criticism has been that he has pushed out a large number of experienced executives, replacing them with younger ones like Mr Semerci.

Source: NEW YORK TIMES (The Straits Times 5 Oct 07)

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