The son of a GM assembly line worker and the grandson of a slave, O’Neal – with the benefit of a GM scholarship – earned his college degree at the General Motors Institute, now Kettering University, in 1974. After a meteoric rise through the ranks of GM – which included another college scholarship, this one to Harvard – O’Neal made the fateful decision to leave GM. In 1986, O’Neal left the United States’ preeminent industrial powerhouse – and, perhaps, at one time, the company people throughout the world most closely associated with the United States and her unprecedented wealth - for the seemingly greener pastures of Wall Street and Merrill Lynch. It was an enormous blunder. In fact, O’Neal leaving GM for Wall Street is the same mistake the US made as a country in microcosm. The mistake being, the belief that real wealth was no longer the inevitable by-product of physical production; instead, wealth could be created out of thin air by Ivy League history majors trading pieces of paper with numbers printed on them back and forth with each other.
By 2002 O’Neal had worked his way up to CEO of Merrill. As quickly as he rose, he fell even faster. O’Neal wanted Merrill to beat the likes of Goldman Sachs at their own game – trading. He plunged Merrill into the market for sub-prime mortgages. O’Neal ignored the counsel of mortgage industry veterans like Jeffrey Kronthal who were growing increasingly worried about the risks the company was assuming in its mortgage trades. (Kronthal worked at Salomon Brothers in the early 1980s when mortgages securities were basically invented by Lewis Ranieri.) More tellingly, O’Neal ignored the warnings of his own research department. By 2006 Merrill’s research department noted that it would only take a 5% decrease in home prices for losses to be incurred in even the “triple-A” tranches of the mortgage bonds.
Eventually – and far too late to save his company - O’Neal realized the enormous losses being produced by his mortgage trading strategy. More fatally for his future with Merrill, O’Neal approached Wachovia about a possible merger, and did so without his board’s approval. This proved to be a fatal mistake. On October 30, 2007 O’Neal was forced to resign from Merrill. “Forced” is a relative term here because as part of this forced resignation O’Neal took home $161.5-million in retirement benefits. When it was all over, Merrill’s total losses in the financial crisis were estimated to be at least $56-billion.
See Robert Rubin (#41) for another Harvard educated senior executive of a Wall Street firm who took home tens of millions of dollars in salary while his firm lost tens of billions of dollars. O’Neal was replaced as Merrill CEO by John Thain (#46).