Merrill Lynch (NYSE:MER) may be headed for some turbulent waters after its recent derivatives fiasco that sent earnings plummeting. The investment firm is reportedly ousting CEO Stan O'Neal in a matter of days. Further, there is also speculation that the company is considering a merger with Wachovia. The news sent shares up today after today's steep loss.

The shares rallied on the news despite the fact that even more writedowns are expected during the next quarter. Merrill Lynch reportedly owns $20.9 billion in collateralized debt obligations and subprime mortgages - two markets that are continuing to deteriorate. The $8.4 billion writedown may have been a hit, but some analysts are expecting an additional $4.5 billion in the near future.

Merrill Lynch also has many investors confused after it refused to disclose what happened to $11 billion in CDO exposure - a position that was open in the second quarter but suddenly disappeared, neither written down nor on the firm's books. Events like this lead many to wonder how well the firm really is able to value these securities in the first place.

In the end, the ousting of this chief executive may result in a more conservative pick during the next round. The board will also likely step up their oversight into risk management policies and procedures. Moreover, a potential merger with Wachovia or investment by a large investor like Warren Buffet would certainly prove to be a windfall. Combined, these things make MER a stock worth watching!

Related Companies
Morgan Stanley (MS)
Lazard Ltd. (LAZ)
BlackRock Inc. (BLK)