But Merrill's troubles go far beyond its recent subprime problems, and the solutions are less obvious than those Thain applied at the exchange. The firm is fixable—if. The ifs pile up on one another. If Thain can salvage Merrill's reputation amid the multiple investigations, including a criminal probe by the United States Attorney for the Southern District of New York. If the credit crunch doesn't worsen, turning the firm's billions of dollars in derivatives exposure into a time bomb. If Thain can nurture Merrill's cash cows—its brokers and investment bankers—in a murderous economy. And last, and most delicate, if he can foster a climate of trust and respect in a company with more than its share of sensitive egos.

Also on Portfolio.com: Citi at a Crossroads It's Vikram Pandit's bank now. Can he get past an ugly quarter and lead a turnaround? Merrill Takes a HitAfter another big subprime hit, Thain works on an overhaul.

It is late in the morning of January 17, just 47 days into Thain's tenure as Merrill's chief executive officer, and he is facing an auditorium full of restive employees at a town-hall meeting in New York. A few hours earlier, the firm had announced a record loss of $9.8 billion, almost all of which resulted from its expedition into subprime mortgages and the metastasizing securities and derivatives based on them.

Thain knows that his first job is not to appease angry shareholders—an almost impossible task, at least for now—but to keep Merrill Lynch from melting down. It is a sign of the times that this is the new benchmark of success. In just six weeks, Thain has raised $12.8 billion in capital, begun to assemble a new management team, and applied a backhoe to the muck on the balance sheet. Now comes the hard part: restoring the company's shattered morale. That's why Thain opts to meet so quickly with hundreds of Merrill employees—clerks, brokers, analysts, and techies—in person, with thousands more linked worldwide by teleconference and workstation video hookups.

Something unexpected happens. Thain, belying a reputation for being stiff and robotic, turns on the charm with dry humor and a relaxed demeanor. A rambling question—a complaint, really—comes in from a broker in the Minneapolis office. Thain hands the call off to a subordinate, drawing laughter without embarrassing anyone. "He's a much better people manager than people would expect him to be," says William Ford, a former colleague and NYSE Euronext board member, who is C.E.O. of General Atlantic, a private equity firm.

Merrill's brokers (16,740 according to its most recent quarterly report) are the heart and soul of the 94-year-old firm. Until the latest mess, they were responsible for pretty much all that was bad or good about the company, at least in the public eye. After O'Neal took charge of the brokers in 2000, two years before he became C.E.O., 6,600 of them were fired, and the years that followed brought unprecedented carnage: 24,000 jobs cut companywide, 300 field offices shuttered, analyst and banker positions slashed. The cuts were not sadistic—they were amply justified by a stuttering market and resulting investor jitters—but they seemed that way.

Since then, the brokers have been producing, mad as they are. During the last three months of 2007, they pulled in an impressive $30 billion in new assets, from retail clients alone, in a tough market. They despised O'Neal, and the feeling was mutual. Now they watch closely as Thain takes a question from the crowd.