The hot seat atop Merrill Lynch ( MER) just got hotter for CEO Stan O'Neal.Shares in the big brokerage firm jumped 6% Friday morning as investors bet O'Neal will be forced out by the board. The run-up came after reports made it clear that O'Neal's credibility problems may go well beyond this week's $8 billion mortgage-securities writedown. The New York Times reported Friday that O'Neal angered Merrill directors by calling Wachovia ( WB) chief Ken Thompson to broach the issue of a possible merger without first consulting Merrill's board. The Times said directors were so angered by the executive's apparent disregard for board authority that they are considering replacing him and even discussed the names of possible replacements such as Blackrock's ( BLK) Larry Fink and the NYSE's ( NYX) John Thain. Merrill didn't comment, but the news puts O'Neal in an increasingly untenable spot following a series of black eyes tied to the brokerage firm's expansion into risky debt markets. Merrill spent $1.3 billion buying subprime mortgage shop First Franklin from National City ( NCC) last September, at a point when U.S. house prices had already peaked and defaults on riskier mortgages were already rising sharply. The firm also pushed hard into the business of packaging together various bonds as so-called collateralized debt obligations. Merrill's sales of CDOs jumped in recent years, making the firm the top peddler of the debt on Wall Street.
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