Brokers at Merrill Lynch and Citigroup's Smith Barney are optimistic about the long-term prospects for their firms after their chief executives resigned several weeks ago. E. Stanley O'Neal and Charles Prince, respectively, left their companies after the market collapsed under Wall Street's latest fad-collateralized debt obligations (CDOs).

"It's a blessing," says one Merrill veteran in the Southeast. "Most people are sad that we had those kinds of losses. But we're enthusiastic about the future. We need a change in leadership, and now we're going to get it."

Yet at Merrill Lynch, brokers' personal finances are taking a worse hit from the corporate turmoil than those at Smith Barney. That's because Merrill brokers receive a larger proportion of their compensation in company stock than any of the other four rival wirehouses.

Merrill brokers receive about 4% of their regular pay in stock. On the other hand, Smith Barney advisors might get Citigroup stock worth as much as 3% of annual commissions if they earn production bonuses, or if they decide to purchase it through a 25% discount program.

Either way, reps at both companies are feeling the pain. At both firms they are poorer on paper now than they were before the gigantic, third-quarter write-downs at their companies; $8.4 billion at Merrill, and $6.5 billion at Citi. And the companies' stock prices have reflected negative investor sentiment. Merrill's shares have fallen by as much as 42% in less than a year, while Citigroup's have dropped by 40%.

Smith Barney reps have scaled back their buying of Citi stock since prices have been depressed, says executive recruiter Danny Sarch of Leitner-Sarch Consulting in White Plains, N.Y. Nevertheless, one of Smith Barney's East Coast brokers claims there's still "wide ownership [of Citi stock] among brokers here."

The write-downs resulted when the companies admitted their principal portfolios of CDOs were worth less than previously valued. Those CDOs often include subprime mortgage loans, which have tanked since June.

O'Neal's departure was more surprising than Prince's since Citigroup has suffered lackluster performance for its four years under Prince. Merrill enjoyed four-and-a-half years of record profits under O'Neal, although he was unpopular among rank-and-file brokers. "There was a cool wind blowing at Merrill after O'Neal came in," says Mitchell Slater, the son of a Merrill broker and a 17-year Merrill veteran himself until he left in 2005. Slater faulted O'Neal for replacing the "Mother Merrill" broker culture dedicated to bottom-line results.

He also says he and other reps there loathed O'Neal's emphasis on having Merrill reps chase $10-million-plus customers rather than pursue the $1 million clients, which were formerly acceptable. Moving into that general demographic meant Merrill reps had to learn and then offer complicated products, such as structured notes.

One headhunter notes that Merrill reps can't dump their restricted company stock on the open market. The only way for them to diversify that equity is to "take a deal" and jump to other brokerage firms.

"If you cash out," says executive recruiter Sarch, "you can get somebody else's stock at a cheaper price."

At press time, both Merrill and Citigroup were conducting searches for chief executives. CNBC reported that Laurence Fink, chairman and CEO of BlackRock Inc., has been offered the CEO post at Merrill. One analyst says not to expect major changes in the way the private client group is run-no matter who lands in the top spot at Merrill. "It's unlikely that a new person is going to come in and say, 'The retail brokerage strategy here is wrong,'" says Dick Bove, an equity analyst who covers brokerages for Punk, Ziegel & Co. "They would never hire that person in the first place," he notes. "What will affect brokers is what the market does. If the market continues [falling], Merrill will have a high cost structure. And that will result in layoffs," Bove says.

At the same time, some analysts have called for a widespread break-up of Smith Barney, including the brokerage unit. How do reps there feel about that?

"We're looking for someone who will make the stock perform better and who believes that it's right for Citi to be in the brokerage business," says an East Coast Smith Barney veteran. He applauds Prince for having continued to invest in the Smith Barney platform in areas such as executive financial services. "We don't want to see any disinvestment," he explains.

As if the management and stock price problems weren't enough, the companies are both facing additional write-downs, lawsuits and at least one investigation by the Securities and Exchange Commission (SEC). While the commission does not comment on the nature of its investigations, published reports say that an investigation into Merrill could center on whether bankers there tried to "park" some of their losing subprime debt with hedge fund traders. The deals would have allowed Merrill to book losses from those securities in a later tax year.