FEEDING FRENZY

Wall Street is screaming for the head of Merrill Lynch CEO Stan O’Neal – and made that point by bidding up Merrill’s stock by $4.5 billion yesterday for its biggest jump in five years.

Analysts believe the 54-year-old O’Neal – once hailed as a superstar – has overnight become the new public face of Wall Street’s deeper woes, and could be ousted from his job as early as this weekend.

Market rumors of his imminent ouster sent shares soaring nearly 9 percent to $66.06, up $5.19 in heavy trading – five times normal volume.

Insiders and some executives at the world’s largest brokerage are said to be in revolt over O’Neal’s five-year reign, which has led to colossal blunders and Merrill’s worst losses in its 93-year history.

If O’Neal resists calls for his ouster, a nasty boardroom battle could drag the firm deeper into disarray, insiders said.

O’Neal is already in hot water with the board for going behind its back in recent weeks to feel out Wachovia Bank – a top Merrill client – on whether it might want to plan a rescue merger with Merrill that could earn him a $221.8 million severance windfall.

One Merrill Lynch figure, Win Smith, the son of a company co-founder, is openly agitating for O’Neal’s quick dismissal.

Smith, who had lost out to O’Neal for the top job, told the Associated Press the board has yet to reach out to him or other former executives, but said that many of them are standing by to help lead a search for a new CEO.

“We’re all getting tons of e-mails and phone calls from people in and outside the firm,” he said, adding that “there is no organized effort yet.”

Two outside candidates frequently mentioned as replacements are John Thain, a former top partner at Goldman Sachs who now heads the NYSE Euronext, and Laurence Fink, who runs the successful BlackRock fund, in which Merrill bought a 49.8 percent stake last year.

Meanwhile, insiders say that the debate over what O’Neal did or did not say to Wachovia, as first reported in The New York Times, is a sideshow to the very real crisis that Merrill’s fixed-income division is coping with every day.

The most explosive problem on Merrill’s balance sheet is a lump of about $15 billion of bond derivatives known as collateralized debt obligations – or bonds made out of other bonds. These had been reduced from an earlier morass of $30 billion, but still pose a deadly risk ahead.

This paper, according to CDO traders and the firm’s mortgage desk, is likely the most volatile and riskiest component of its assets, and is almost entirely illiquid. Merrill’s CDO desk “should be happy to get a few pennies on the dollar for what they have on the books,” said the general partner of a $5 billion New York hedge fund.

“If they wanted to trade it all away, they could get maybe $2 billion on the open market.”