Merrill Lynch & Co. Chief Executive Stan O'Neal broached the idea of merging with Wachovia Corp. without first getting board approval, angering some members so much they considered replacements for O'Neal, the New York Times reported on Friday.
The paper, citing people familiar with the situation, said the board's reaction indicates a merger is not likely for now.
The merger approach, which came before Merrill's disclosure this week of a $7.9 billion third-quarter write-down for collateralized debt obligation investments, was viewed as a major breach of corporate protocol, the paper said.
The board considered candidates including Laurence Fink, chairman and chief executive of BlackRock, which is roughly half owned by Merrill and John Thain, chief executive of NYSE Euronext.
Representatives of Merrill and Wachovia were not immediately available for comment.
The disclosure of a division between O'Neal and the Merrill board is likely to add to pressure on the bank as it deals with the fallout from the write-downs, which some analysts expected to increase.
The world's biggest brokerage also reported a $2.3 billion loss in the quarter, the biggest in its history. The bank wrote down a total of $8.4 billion in investments, of which $7.9 billion was for CDOs and subprime mortgages.
Merrill shares fell $2.32, or 3.67 percent, to $60.90 on Thursday.
Analysts said the losses and write-downs suggested Merrill's risk controls were substantially deficient, raising questions about O'Neal's leadership. O'Neal acknowledged mistakes in a conference call with analysts.
The paper said O'Neal called G. Kennedy Thompson, Wachovia's chairman and chief executive, just days before Merrill's board meeting slated for last Sunday.
Thompson expressed interest in having a conversation, the paper said, but acknowledged difficulties in such a business combination.
A combination of the two investment giants, assuming it could pass regulatory muster, would marry two of the largest retail brokerages. Wachovia manages about $800 billion in client assets and has 11,400 representatives in 786 offices in the U.S. Merrill manages total client assets of $1.7 trillion.