Merrill Lynch and Co., Inc. (NYSE: MER) CEO John Thain said today that the risk in the housing market is "much lower" than it has been recently as the credit crisis in the U.S. is "getting better." Leave it to the leader of a company which has written off over $30 billion in mortgage lending investment to make this claim. But the thing is, could he be right?

Although Thain said "economic pressure" will remain high over the next year, he expressed confidence that the end of the housing bubble, which is still popping in many parts of the country, is now in sight. Thain also indicated that food prices and shortages as well as higher unemployment will continue to have an impact on the U.S. economy. Of course Merrill has had three quarters of disastrous results like other large investment banks, and the company is still toiling with the idiocy of incredibly risky investments that have left it weakened financially.

Even if Thain had been hired by Citigroup, Inc. (NYSE: C) last year, he'd be in the same mess in the same industry. I'm not sure what "much lower" risk in the housing market means, although he's probably talking about his company's reduced exposure to those SIVs and other vehicles from the Flintstone era that start off fast before the wheels fall off.

I hope Thain is correct in his assessments, and Merrill Shareholders are probably wanting the same thing, just much more badly than myself.

Over the years, there has been a symbiotic relationship between investment banks and private equity firms. And it has been quite profitable (in terms of fees) -- that is, until recently.

Now, with investment banks ailing, the relationships may get even stronger. In other words, private equity firms -- which are bulging with cash -- may be providers of much-needed capital.

According to a piece in the Financial Times [a paid publication], there have been some discussions between TPG and Merrill Lynch (NYSE: MER) regarding financing. Funny enough, Merrill's CEO, John Thain, has been fairly clear that his firm doesn't need the money. But, hey, things can change, right? So why not keep the channels open? That's what good investment bankers do.

However, the potential linkup does raise some interesting issues. After all, there could be serious conflicts of interest. Investment banks are supposed to provide unbiased advice to their clients. But, is this possible if TPG is a bidder for a Merrill client?

True, Wall Street is known for dancing with these conflicts (if not relishing in them). But, I'm sure clients will get a little squeamish.

Besides, as a major investor, TPG is likely to have lots of visibility into Merrill -- which may provide a strong competitive position. In a way, this could mean that rival investment banks will be standoffish when dealing with TPG.

Then again, another possibility is that Merrill and TPG will forge a major alliance, becoming the private equity division. This could be attractive to Merrill, which is currently hamstrung because of the credit crunch.

Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and mid-size businesses.

FT.com reports that newly appointed Merrill Lynch & Co. (NYSE: MER) CEO, John Thain, wants to remake Merrill in Goldman Sachs Group's (NYSE: GS) image. In particular, Thain wants different parts of Merrill to work more effectively as a team.

The irony of this idea is high. That's because Thain's predecessor, Stanley O'Neal hammered his subordinates every quarter as Goldman outperformed Merrill. O'Neal led a big increase in Merrill taking on more trading risk because he thought that was what led Goldman to do so well. It was this Goldman envy that ultimately led to O'Neal's downfall.

Now Merrill's board has someone who worked at Goldman -- Thain spent most of his Wall Street career in the Goldman system, rising to become co-president before leaving in 2003 -- to try again to remake Merrill in Goldman's image. In my book, Value Leadership, I compared the Goldman and Merrill cultures and concluded that Merrill has a long history -- dating back at least to 1995 -- of encouraging internal competition based on a star system that creates massive amounts of turnover at executive levels.

I predict that Thain will face enormous resistance when he tries to impose the Goldman system of teamwork onto the Merrill culture. If he succeeds, he deserves enormous admiration.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

CNBC's Charlie Gasparino reported that Laurence Fink, who was offered the Merrill Lynch (NYSE: MER) CEO job, asked Merrill's board for a complete accounting of the subprime problem there before he would agree to accept the position. This request encouraged Merrill's board to "go in a different direction."

If Fink did not like the results of the subprime audit, he could have turned down the position and left Merrill's board in the awkward situation of needing to disclose the truth of the situation. What I find amazing is that Merrill's board needed Fink to drag it into making such an audit. And then it decided that it would rather offer the CEO job to someone else who wouldn't force it to come to grips with its problems.

John Thain is going to have a tough job ahead of him. But Merrill's gain is Citigroup Inc.'s (NYSE: C) loss.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in Merrill Lynch.

New York Stock Exchange Chief Executive John Thain has been picked by Merrill Lynch & Co. (NYSE: MER) to be its next CEO, according to media reports.

The New York Post, which broke the story, writes "The move is a huge coup for Merrill and board member Alberto Cribiore, who has led the search for a new CEO after (Stan) O'Neal resigned on Oct. 30."

But Merrill's quick move is bad news for CItigroup Inc. (NYSE: C), which had wanted to hire Thain to replace its unpopular (and now ex) CEO Chuck Prince, the Post says.

The move is unexpected, according to the Wall Street Journal [subscription required], which said "insiders on Wall Street" had speculated that BlackRock Inc. CEO Larry Fink would get the job. CNBC is reporting that Fink was offered the job but turned it down.

Thain's departure from NYSE Euronext (NYSE: NYX) isn't a shock. He viewed the job, which he got after the departure of Richard Grasso, as a public service, according to the Journal. Shares of Merrill Lynch, down more than 35% this year, rallied on the news, rising $2.82, or 5%, to $59.75. NYSE Euonext and Citigroup were little changed.

The reshuffling of Wall Street's top management is far from over. Watch this space.

MAJOR PAPERS:

• Due to accelerating losses at its American consumer-lending unit, HSBC Holdings PLC (NYSE: HBC) said it would take $3.4B in charges during its Q3, the Wall Street Journal reported. Despite the charges, the company said its Q3 operating income was up compared with the prior year due to revenue growth in the group.
• NYSE Euronext Inc (NYSE: NYX) CEO John Thain is not on the first short list of candidates being considered for the Citigroup Incorporated (NYSE: C) CEO position, according to an inside source, the Financial Times reported.

OTHER PAPERS:

• Lululemon Athletica Inc (NASDAQ: LULU), a standout performer on Wall Street, is reportedly under fire for potentially false claims of its VitaSea clothing line, which the company says is made from seaweed fiber supplied by SeaCell. According to lab tests, the New York Times reported there was no significant difference in the mineral levels between regular cotton T-shirts and Lululemon's VitaSea fabric.

The New York Times reports that Citigroup Inc. (NYSE: C) may make Robert Rubin Chairman until it can find a CEO. This temporary solution is analogous to what Merrill Lynch & Co. (NYSE: MER) did by making Alberto Cribiore, a director, its interim non-executive Chairman.

Rubin, who has made $150 million at Citigroup since he left the Treasury Department eight years ago, has traded a sterling reputation at Goldman Sachs Group (NYSE: GS) and Treasury for a nice chunk of change at Citigroup. Unfortunately for him, making bank at Citigroup has tarnished his reputation -- despite his efforts to distance himself from Citigroup's problems. Meeting with clients and walking around without shoes offering advice -- known in his contract as "no operational responsibilities" -- does not seem to have buffed Rubin's reputation.

If the New York Times is correct, it remains to be seen how Rubin's role will change. It could be that his primary job will be to take the lead on recruiting Prince's successor. Will he take on an interim non-executive Chairman's role like Cribiore? I imagine he'll seek to evade legal responsibility for Citigroup's problems. Otherwise, he could end up spending more time than he'd like dealing with shareholder lawsuits.

Before coming on board the NYSE Group as CEO, John Thain was a bigwig at Goldman Sachs. Well, he certainly learned the skills of dealmaking there and he's applying them to his current gig.

This week, the shareholders of Euronext NV approved a merger with the New York Stock Exchange. The transaction amounts to about $14.6 billion.

This is unprecedented, and creates a trans-Atlantic exchange which will trade stocks with a combined value of $25.8 trillion. Of course the integration will not be easy since cross-border deals are rarely smooth.

But in a recent interview on CNBC, Thain was confident.

It looks like the merger momentum is going to continue into 2007. Thain said he is looking to Asia for consolidation, perhaps even merging with the Tokyo Stock Exchange. The two parties have already begun having some discussions.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfile.com.