It's been almost a year since December 12, 2007, when Vikram Pandit took over as CEO of Citigroup (NYSE: C). His performance has been outstanding -- and not in a good way. During the last four quarters, Citi lost $20 billion. Sure Pandit has plans to fire 52,000 people and he's raised at least $45 billion from the U.S., along with guarantees on $277 billion worth of Citi's bad assets. But he botched the acquisition of Wachovia (NYSE: WB). And Citi stock has fallen 81% wiping out $138 billion in stock market value.

By contrast, John Thain, who took over as CEO from the Bank of America (NYSE: BAC) subsidiary Merrill Lynch, was far more agile as things cratered around him. Arguably, Thain had an even worse hand than Pandit when he took over Merrill Lynch because his predecessor had loaded it up with mortgage-backed securities at precisely the wrong time. But Thain could see Merrill's stock plummetting as it got trapped in a short play. And he salvaged shareholders' investment by selling to Bank of America.

Now CNBC's Charlie Gasparino reports that Pandit has about half a mistake more to make before he's out of a job. But this is not a problem for Citi shareholders as long as its board can convince Thain to leave Bank of America where he has taken on a sub-CEO role so he can get back into the big saddle at Citi. Count me among those shareholders who would be happy to see Pandit exit stage right as Thain enters.

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 the other securities mentioned.

The New York Times reports that underneath the failure of Lehman Brothers Holdings Inc. (NYSE: LEH) was a desire by its CEO to get more money for his company than the Korean Development Bank was willing to pay. The reason Richard Fuld wanted more was that he was in a state of denial about reality. And that's a common problem facing successful people all over -- one I call confirmation bias -- in which a decision-maker ignores information that is not consistent with his or her world view.

And that is the beauty of a system of free markets in which there is complete transparency of costs and benefits and participants win and lose on the merits of their strategies. Until this weekend, the government had been operating under a scheme of private profits and nationalized losses. In other words, the taxpayer footed the bill for those multi-million compensation packages for the executives who generated the losses.

But with the government's decision to let the private sector live with the consequences of its bad decisions, we are getting closer to a free market system. Such a system would create powerful incentives for a vigilant attitude towards rapidly changing reality by managers -- such as John Thain -- who could see that Merrill Lynch & Co.. (NYSE: MER) would follow in Lehman's footsteps absent a deal. And if we had a system that solved the five flaws in our financial architecture, we could truly benefit from a system of free markets in the future.

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.

After reading an interview in the New York Times with Merrill Lynch & Co. (NYSE: MER) CEO John Thain, I began to wonder whether Wall Street, as it currently exists, needs to change.

What's wrong with Wall Street? Here are five things:

• Rewards employees, not shareholders - It pays as much as 76% of its revenues to the people who work there (e.g., in 2006 Merrill paid $17 billion in compensation and its revenue totaled $22.4 billion). That pay is linked to revenue, not how much money their deals make for customers. This encourages them to close big deals fast rather than paying attention to quality.
• Puts its own interests ahead of its clients' - One need look no further than how firms pushed their toxic Auction Rate Securities (ARS) off their books and into the accounts of individual investors.
• Absorbs talent that could solve more important problems - That money sucks up the world's brightest minds. Those MIT PhDs could have been inventing ways to lessen our dependence on oil and gas instead of Collateralized Debt Obligations (CDOs).

It is not right to say that management misleads investors. That is too crass.

But the coarse language may come out when Wall Street talks about what Merrill Lynch (NYSE: MER) did today. After the bell, MER "said it expects to take a $5.7 billion pretax write-down in the third quarter due to losses on the sale of mortgage assets and plans to raise at least $8.5 billion by selling new common shares," according to Reuters. Well over $3 billion of that will come from Singapore's Temasek Holdings. It put some money into Merrill before, and this evening's news may have left it with a bad taste. But it stepped up anyway, probably to protect the cash it had already put in.

The trouble is this. John Thain, Merrill's CEO, has kept saying that the worst was behind the company. He said he had engineered a solution by selling Merrill's stake in Bloomberg and by taking what were supposed to be the lion's share of the writedowns last quarter. Thain's credibility bled out onto the floor late today.

The SEC will get to take something away from today. Merrill's stock began to sell off sharply at about 11 AM. By the end of the day, it was down over 11%. Someone knew something when they should not have.

Douglas A. McIntyre is an editor at 247wallst.com.

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.

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.

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.