updated 11/14/2007 6:27:18 PM ET 2007-11-14T23:27:18

Merrill Lynch & Co. said Wednesday it has tapped New York Stock Exchange head John Thain to lead the world’s largest brokerage through the unfolding credit market turmoil that threatens Wall Street’s biggest investment houses.

Thain, 52, has been selected to become Merrill’s next chairman and chief executive officer. His appointment comes just two weeks after the ouster of Stan O’Neal as Merrill reported a $2.24 billion loss during the third quarter, the largest in its 93-year history.

NYSE announced Wednesday that 48-year-old Duncan Niederauer, a 22-year Goldman Sachs Group Inc. veteran who joined the exchange in April, would replace Thain.

Thain’s first day on the job is Dec. 1.

“I am excited and honored to have the opportunity to lead such an outstanding organization,” Thain said in a statement. “I am certain that together we can continue to grow Merrill’s global business and add value to our customers and our shareholders.”

Thain is no stranger to the investment world. He’s credited with remaking the NYSE into the world’s first truly global exchange. He started out on the bond desk at Goldman Sachs Group Inc. and left the firm as its chief operating officer.

Many say his reputation as a consensus builder is exactly what Merrill Lynch needs now. O’Neal, Merrill’s former CEO, was not well liked by its army of some 16,000 brokers, and lost their confidence after the company recorded the third-quarter loss.

Alberto Cribiore, Merrill Lynch’s interim non-executive chairman who headed a search committee to find a new CEO, said Thain is “the right person to become the new chairman and CEO.”

Merrill Lynch ratcheted up a huge loss during the third quarter because of investments in subprime mortgages and other risky types of debt. It joined dozens of other major financial institutions who are getting squeezed as investors steer away from riskier securities, causing credit markets to tighten significantly.

There is also speculation by a number of analysts that Merrill may take a $3 billion fourth-quarter writedown. That would be besides the $7.9 billion charge taken last quarter. Merrill originally said it would write down only $4.5 billion because of the credit crisis.

Thain faces a daunting task of cleaning up those investments, and reviving morale at a firm badly bruised during the past few months. There has been speculation that a new CEO would be forced to turn around Merrill’s fixed income division, a department that he once ran for Goldman in the 1990s.

The announcement was unexpected since many insiders on Wall Street thought Merrill would select BlackRock Inc. CEO Larry Fink. O’Neal had dinner with Fink just days before retiring from Merrill Lynch. At that dinner, O’Neal approached Fink about becoming his successor — and Fink had been in talks ever since.

Fink, could not be reached for comment, but a spokesman for Merrill Lynch said “Fink was never offered the job.”

Still, Fink might be up for another job in a game of musical chairs on Wall Street.

Industry watchers had pointed to Fink as a possible replacement for Charles Prince, who left the helm of Citigroup Inc. on Nov. 4, less than a week after O’Neal stepped down from Merrill. Thain was also said to have been considered as a candidate for the top job at Citi.

Prince was forced out of his job after Citi’s profit fell 57 percent in the third quarter when it booked $6 billion in asset markdowns and other credit-related losses. The night Prince resigned, the company estimated it would need to write down another $8 billion to $11 billion in the fourth quarter.

Thain leaves behind a transformed exchange that he turned into a public company. His first task after taking over in 2004 was the acquisition of electronic trading platform Archipelago Holdings Inc. It was the first step in bringing NYSE into the 21st century, which ultimately led to the creation of a mostly electronic market last year.

He also shepherded the NYSE’s April acquisition of European rival Euronext, which operated bourse’s in Paris, Amsterdam, Brussels and Lisbon. There was speculation that NYSE Euronext would name co-COO Duncan Niederauer as Thain’s replacement.

Merrill Lynch shares spiked $2.81, or 5 percent, to $59.76 after reports emerged of Thain’s move. They gave back some of those gains, closing up $1.03, or 1.8 percent, at $57.98. Its stock — which slumped about 30 percent this year before O’Neal stepped down — had moved higher on hopes for a change in leadership.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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