John Thain is reportedly leaving the top position at NYSE Euronext to assume the CEO mantle at brokerage house Merrill Lynch & Co., which is reeling from its write-downs in the sub-prime mortgage mess.

The move came as a surprise to some industry observers after reports that Merrill was courting BlackRock Inc. CEO Larry Fink who has expertise in risk management and fixed income trading.

Commenting on the move to Merrill, Larry Tabb, founder and CEO of TABBGroup, says,” It’s surprising from the standpoint that he’s already run a brokerage business and the question is why would he want to do that again,” poses Tabb.

Prior to joining the NYSE in 2003, Thain was previously president and chief operating officer of Goldman Sachs Group where he reportedly worked on the mortgage bond desk. He also served as chief financial officer and head of operations, technology and finance.

“On the other hand, there’s tremendous upside in taking the Merrill (post) especially over Citi,” says Tabb, noting that the situation at Citi was more complicated and there were many moving parts and strong and entrenched groups over there. In Citi’s case, the next CEO who will replace the departing CEO Charles Prince, will be wrestling with retail banking, credit cards, mortgages, investment banking as well as Smith Barney and all these units are independent of each other.

On top of that, there are significant discussions about breaking up Citi and the next CEO will need to deal with that, notes Tabb. On the other hand, the private wealth management side of Merrill Lynch is probably the strongest on the Street, says Tabb. Their institutional distribution capabilities are extremely strong as well. Once the mortgage problem gets cleaned up, Tabb says, “The rest of the franchise is very strong.”

As to why Merrill did not choose Fink – who is also being considered for the Cit position — Tabb says, “ The big challenge with Fink is that Merrill is a retail brokerage powerhouse and Bringing someone in from outside that culture may be very difficult.” Because Merrill is such a cultural place, bringing in Thain, an outsider “is not without risk,” either, says Tabb.

But this is the second time that Thain, a graduate of Harvard University with an MBA from M.I.T., stepped into a crisis situation. In 2003, Thain joined the NYSE following the ouster of NYSE CEO and Chairman Richard Grasso over his compensation package and after a scandal over specialists front running institutional customer orders. Since then, Thain has pushed the NYSE into electronic trading with the acquisition of Archipelago and diversified the NYSE’s business through the transatlantic merger with Euronext. “Thain changed the culture there and brought in some good folks,” notes Tabb.

Thain’s first job at Merrill Lynch will be to clean up the mortgage mess left by Merrill’s former CEO Stanley O’ Neal, who was ousted about three weeks ago after revising a third-quarter write-down up to $7.9 billion, almost $3 billion more than the $5 billion estimated on Oct. 5 “He needs to certainly clean up the mortgage problem, work on how to get them priced better and figure out how deep does this problem go and see if there are any more write-offs and to get them done right away,” says Tabb.

The second item on Thain’s agenda will be to invest significantly in some risk management services, “so they never get caught like this again,” says Tabb. The third issue will be to think about how Merrill can better leverage its risk management infrastructure with the proprietary trading side of the business culture, says Tabb. In other words, Thain can teach Merrill to run its business more like Goldman Sachs. Tabb says after they create a risk management infrastructure to know where their exposures are at, they need to create facilities to hedge their risk and then create a group that can take advantage of those risks without disenfranchising their core institutional customers, advisesTabb.

Meanwhile, NYSE Euronext will reportedly name Duncan Niederauer as the exchange’s president and co-COO, as the next CEO to replace Thain. Niederauer joined NYSE Group in April from Goldman Sachs where he was a managing director in charge of electronic strategy and execution across equities, fixed income and futures and options. “Thain is very much a strategic guy and visionary. I think Duncan will grow into being the CEO of that organization,” comments Tabb. According to Tabb, the challenge for Niederauer will be to solidify the organization’s position in Europe without disenfranchising the U.S. equity markets, while figuring out what’s going to happen with dark pools. “They’re making the right decisions. The question is execution,” says Tabb.

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