Wall Street was braced last night for its first chief executive casualty of the summer’s credit turmoil after it emerged that Stan O’Neal of Merrill Lynch faces the axe this weekend.

Shares in the American investment bank surged 8.5 per cent in New York on speculation that the Merrill Lynch board will oust Mr O’Neal within days.

Some Merrill executives are thought to be livid that Mr O’Neal approached America’s fourth-biggest bank last week about a potential $140 billion merger without consulting them. Mr O’Neal telephoned the chief executive of Wachovia, the retail and investment banking group valued at about $86 billion, over a possible tie-up.

Mr O’Neal’s predicament will be keenly watched by other banking executives who are themselves nursing billion-dollar losses from the liquidity crisis this summer. Bankers on Wall Street and in the City are uncertain whether losses arising from the crisis will deteriorate further and claim more top-level resignations and widespread job losses across the sector.

The future of Chuck Prince, the chief executive of Citigroup, the world’s biggest bank, has been the subject of speculation as the bank admitted a $2.2 billion charge in the third quarter to boost reserves against bad mortgages.

There is also doubt over how much this summer’s liquidity crisis has spilled over into the wider US economy, which many economists believe will sink into a recession. Economists are still divided on whether the US Federal Reserve will cut rates when it meets next week.

It is understood that Mr O’Neal’s approach was very preliminary and it is not clear whether Wachovia and Merrill agreed to have another conversation. Wachovia declined to comment. The conversation, which was understood to have been initiated by Mr O’Neal, took place as the investment bank was totting up the $7.9 billion write-off to cover the cost of its investments in bonds that were backed by toxic sub-prime mortgages.

That write-off plunged the bank into its biggest quarterly loss, and is expected to widen as the value of such mortgage-backed securities continues to slide.

Mr O’Neal was reported to have admitted privately to friends that he thinks he will be out of a job by the weekend. Merrill Lynch declined to comment.

Laurence Fink, chairman and chief executive of BlackRock, the investment firm partly owned by Merrill Lynch, was identified as a possible successor to Mr O’Neal. John Thain, chief executive of the New York Stock Exchange, and an internal candidate, Robert McCann, senior executive overseeing the bank’s 16,000 brokers, were also cited. Mr McCann, who is president of Merrill Lynch’s global private client operation, runs a business that has been insulated from the credit-loss turmoil.

The prospect of a disgruntled board, an ousted chief executive and widening losses arising from investments made in sub-prime mortgage-backed debt, led to speculation that the investment bank may also be vulnerable to a takeover. The stock has fallen by as much as a third since the beginning of the year.

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