Merrill Lynch & Co Inc ousted Chairman and Chief Executive Stan O'Neal on Tuesday, just days after reporting the biggest quarterly loss in the company's history, making him the highest-ranking casualty in the U.S. subprime mortgage crisis.

The world's biggest brokerage said board member Alberto Cribiore will serve as interim nonexecutive chairman while day-to-day operations will be overseen by Merrill's current co-presidents, Ahmass Fakahany and Greg Fleming.

Cribiore, founder of private equity firm Brera Capital, will chair a search committee to find a permanent successor to O'Neal. The committee will look inside and outside the company, Merrill said in a statement.

Fleming's duties include oversight of company risk management, a task previously associated with Fakahany, who the company said will lead global support, finance and human resource functions.

Merrill shares dropped 4 percent as investors may have been disappointed that a permanent replacement was not named.

Michael Holland, who oversees $4 billion of assets at Holland Co., said the stock market seems to be saying Merrill's troubles are not over.

Holland also said he was surprised Fakahany remains in leadership. Before the announcement, sources told Reuters he was expected to resign.

Fakahany, wasn't he the guy who was responsible for this series of problems? Holland said. It's at least quizzical that the person who remains in charge is in some ways directly responsible for the problems. ... O'Neal has lost his job because of these mistakes, and some people are asking how can the person in charge of risk management still be there.

From March 2005 until being named co-president in May, Fakahany's responsibilities included market risk management.

Merrill still faces critical challenges because it remains exposed to $20.9 billion in subprime mortgages and collateralized debt obligations.

Some analysts estimate further write-downs of up to $5 billion, on top of the $8.4 billion write-down Merrill took in the third quarter.

Goldman Sachs analyst William Tanona said the assets in question have deteriorated meaningfully since the end of the third quarter. He estimates a $4.5 billion write-down.

Speculation that O'Neal would be ousted mounted after the company last week reported a $2.3 billion loss for the third quarter, mostly because of bad bets on securities tied to risky subprime loans. The loss was several times bigger than what O'Neal forecast earlier this month.

It's no big surprise. Merrill Lynch had a huge misstep in risk management, and someone needed to pay the price, said David Killian, portfolio manager of StoneRidge Investment Partners LLC. The company totally lost its way in risk management.

Last week, O'Neal admitted on a conference call he misjudged the company's exposure to risky subprime loans.

O'Neal, the first African-American to run a major Wall Street company, also hurt his cause when he floated a merger with U.S. bank Wachovia Corp without the board's knowledge, the New York Times reported last week.

O'Neal, 56, became CEO of Merrill Lynch in December 2002, and since then Merrill Lynch's shares have risen about 53 percent, compared with a 160 percent increase for the Amex Securities Broker-Dealer index.

The company said in its statement on Tuesday that O'Neal and the board had agreed that a change in leadership would best enable Merrill Lynch to move forward. The company described his departure as a retirement after 21 years of company service.

The company has provided me with opportunities that I never imagined growing up, O'Neal said in the statement.

O'Neal was raised in segregated rural Alabama. Years later he told an interviewer he was not born in his hometown's hospital because it did not serve African-American families.

But he became one of Wall Street's best-paid executives, taking home $48 million last year. At the end of February, he had nearly 1.3 million restricted Merrill shares, worth about $84 million today.

His stock options, retirement benefits and deferred pay could be worth another $69 million, according to company filings earlier this year.

In addition, Merrill pegged the maximum value of his long-term incentive awards at nearly $34 million, but they're likely worth less today because of the big third-quarter loss.

Bill Andrews, an analyst at money manager C.S. McKee, a Merrill shareholder, said O'Neal accomplished a lot at Merrill.

He pushed the company into new businesses and expanded Merrill's presence overseas, Andrews said. Before the third-quarter meltdown, profit at Merrill had quintupled under O'Neal's leadership.

I don't think his tenure was an abject failure, Andrews said. But Stan doesn't like a lot of debate. People who don't agree with him, no matter how talented they are, weren't around long. That's his Achilles' heel.

(Additional reporting by Joseph Giannone, Dan Wilchins and Jonathan Stempel)