Stanley O'Neal may be entering his final test before being anointed the heir apparent to

Merrill Lynch

(MER)

CEO David Komansky.

In moving to the top of the securities firm's massive private-client division from the chief financial officer's slot, a move that was

announced Monday, O'Neal is rounding out his experience. Already highly regarded in stints as an investment banker and as CFO, O'Neal will now be responsible for the firm's 15,000 brokers and will run a business in which he has never worked.

"If the operation produces results, quarter to quarter, he'll be in a good situation." says money manager Michael Holland, whose firm,

Holland Asset Management

, doesn't hold Merrill shares.

O'Neal and other Merrill officials won't say whether he's being groomed for the top job. But inside the Merrill branch system Monday, the chatter was that it would be O'Neal's final test. "I've never seen anyone make it without working in the private-client area," says one Merrill Lynch branch manager. "

O'Neal's appointment may bring a whole new creativity to the system."

O'Neal says his first order of duty is getting to know the Merrill troops. "I don't envision changing much," he says. "There are commonalities between the institutional business

and the private-client business. The client comes first. You depend on relationships and you have the ability to leverage different parts of the firm."

O'Neal's reputation as a tough cost cutter may go against the grain of a traditional Wall Street CEO, says money manager Holland, but it may be necessary. "The world is changing so rapidly that firms have to be able to do things better, smarter and cheaper. The business will require the intelligent use of the Internet and other ideals that we can't even imagine right now."

Indeed, O'Neal must guide Merrill's 700-branch retail system through the next evolution of brokerages, and integrate the skills of its brokers with electronic trading.

He joined Merrill's investment banking group in 1986, and worked in the firm's high-yield, project finance and equity-private-placement areas. He also headed its capital markets group, and investor strategies group, which provides specialized portfolio consulting and investment advisory services to institutional clients.

His name began to surface as a successor to Komansky after the sudden resignation of Merrill President Herb Allison last year. If O'Neal ends up as CEO, he would be the most prominent African-American executive on Wall Street. Komansky, 60, has yet to hint at retirement and has only been at Merrill's helm since April 1997.

Other candidates are said to be former investment banker and current asset-management head Jeffrey Peek, institutional-client group chief Thomas Davis, and

Merrill Lynch International

head Winthrop Smith.

Meanwhile, John (Launny) Steffens, who had been running Merrill's private-client group since 1985, will become chairman of the division, serve as the senior executive relationship manager in the technology sector and develop global banking products for Merrill.

Regarded as something of a visionary for developing an asset-focused, fee-based retail investment business for Merrill, Steffens says he sees momentum building for Merrill's key retail business. Steffens also presided over the firm's decision to offer low-cost online trading to its clients.

According to Steffens, Merrill's online banking efforts through its brokerage accounts already give investors "anything you can do at any Net bank." The firm sees its banking efforts as key to competing in a deregulated financial services sector.