Thain quits NYSE to take the helm at Merrill Lynch

Merrill Lynch has hired John Thain, the current chairman of the New York Stock Exchange, to replace the ousted Stan O'Neal as chief executive and to start repairing the damage caused by the credit crisis.

Mr Thain's appointment to one of the most powerful positions on Wall Street comes after four years during which he has transformed the NYSE, and marks a return to investment banking for a man who spent most of his professional life at Goldman Sachs, where he was chief operating officer until 2003.

And it gives Merrill Lynch a heavyweight new leader as it struggles with huge losses in its mortgage trading division. As losses ballooned to $7.9bn (£3.8bn), the debacle exposed serious flaws in the way the company managed the riskiest parts of its business, and it cost Mr O'Neal his job two weeks ago. Merrill Lynch shares rallied on word of Mr Thain's appointment, and were up 5.5 per cent at lunchtime, but later retreated to close up 1.8 per cent.

Alberto Cribiore, Merrill Lynch's interim chairman, said Mr Thain would take up the post on 1 December. "He brings unparalleled leadership experience and knowledge of the complexities of global capital markets as well as the skills required to operate a large financial services company. He understands both the company's challenges, and as his track record shows, he appreciates the value associated with the Merrill global brand."

Mr Thain said he was "excited and honoured".

The appointment fills one of the two high-profile Wall Street vacancies that have opened up as a result of the credit crisis. A week after Mr O'Neal lost the support of the Merrill Lynch board, Chuck Prince, chief executive of Citigroup, quit his post in the wake of a $3.6bn loss during the credit crunch. Mr Thain had repeatedly been linked with the Citigroup job in the weeks surrounding Mr Prince's departure, but friends said he viewed that job as a poisoned chalice, since Citigroup's problems extend into its underperforming retail bank.

Analysts were speculating yesterday about the fut-ure of Larry Fink, the head of the fund management business BlackRock, which Merrill Lynch controls through a near-50 per cent stake. He had been touted as frontrunner to replace Mr O'Neal and there were conflicting reports about whether he had been offered the post before Mr Thain.

At Goldman Sachs, Mr Thain spent much of his career on the trading side of the business, including on the mortgage trading desks – where many of Merrill Lynch's problems have been focused. However, Merrill Lynch is different from Goldman Sachs in that it also has a nationwide network of retail brokerages.

Colleagues have long praised the bespectacled 52-year-old's intellect and said what he lacks in obvious charisma he makes up for in coolness under pressure. Without any significant theatrics, he has implemented nothing short of a revolution at the NYSE.

Mr Thain joined the exchange from Goldman Sachs in December 2003 after Mr Grasso was ousted in a row over his excessive pay. The revolt against Mr Grasso had been led by the then Goldman Sachs chief executive, Hank Paulson, Mr Thain's mentor and now the US Treasury Secretary.

When he joined, the exchange was still owned by its members and conducted all its trading through specialists and brokers on its historic trading floor – a situation that was becoming increasingly archaic. He steered the business through a demutualisation, and then floated it via a takeover of the electronic trading platform Archipelago. Since then, Mr Thain has overseen the introduction of electronic stock trading on the NYSE itself that has dramatically shrunk the size of the trading floor.

An even more significant legacy may be his leadership of the global consol-idation of the stock exchanges, crowned by last year's €10.2bn (£7.3bn) acquisition of the pan-European exchange Euronext, after a lengthy battle against Euronext's rival suitor, Deutsche Börse. There have been additional joint venture deals with the Japanese and Indian stock exchanges, which analysts believe put NYSE Euronext on course to create a truly global exchange business if there is a further round of merger activity.

The NYSE Euronext board met yesterday afternoon to confirm another Goldman Sachs veteran, Duncan Niederauer, as its new chairman. Mr Niederauer, 48, joined the NYSE as co-chief operating officer this year after having pioneered the development of electronic trading platforms at Goldman Sachs, and he promised to continue Mr Thain's acquisition strategy.

At Merrill Lynch, Mr Thain is likely to have to oversee significant cuts in parts of the business and will face considerable challenges in convincing investors that he can repair the company's trading operations. Mike Mayo at Deutsche Bank said he was a savvy dealmaker who would be able to inspire the troops. "John Thain should be a good selection," he said.