Merrill Lynch & Co., Inc.

4 World Financial Center
New York, New York 10080
U.S.A.
Telephone: (212) 449-1000
Fax: (212) 236-4384
Web site: http://www.ml.com

Public Company
Incorporated: 1959 as Merrill Lynch, Pierce, Fenner & Smith
Employees: 72,000
Total Assets: $407.2 billion (2000)
Stock Exchanges: New York Chicago Pacific Paris London Tokyo
Ticker Symbol: MER
NAIC: 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523130 Commodity Contracts Dealing; 523140 Commodity Contracts Brokerage; 523920 Portfolio Management; 523991 Trust, Fiduciary, and Custody Activities; 524113 Direct Life Insurance Carriers; 551112 Offices of Other Holding Companies

Merrill Lynch & Co., Inc. is one of the largest financial institutions in the world, with total corporate assets in excess of $400 billion and client assets of nearly $1.7 trillion, as of year-end 2000. The firm stands as the largest retail brokerage house in the United States, as well as one of the leading U.S. investment banks, and is among the global leaders in debt and equity underwriting, bond underwriting, and merchant banking. Long committed to the needs of the small investor, Merrill has continually diversified its offerings from the late 1960s into the 21st century. Now a global giant in the industry, increasingly active in a variety of investment fields outside the retail business, Merrill has evolved far from its original concentration on what its founder called“people’s capitalism.”

1885–1959: From Burnii & Housman to Merrill Lynch, Pierce, Fenner &Smith

Merrill Lynch’s oldest direct predecessor was the partnership of Burrill & Housman, founded in 1885. In 1890 William Burrill left the firm he had created, and the next year Arthur Housman’s brother Clarence joined what was then A.A. Housman & Company. When Arthur Housman died in 1907, he left behind one of Wall Street’s leading brokerage houses.

That same year, Charles Merrill and Edmund Lynch arrived in New York, where they met and became friends. The two 22-year-old entrepreneurs had both recently finished college and gravitated to Wall Street to seek their fortune. At that time, the stock market was chiefly the domain of a small number of eastern businessmen, but Merrill quickly realized the vast potential of financial markets funded by a broad spectrum of middle-class Americans. He received his initial training in the bond department of Burr & Company, and then set up his own firm in 1914. The following year he persuaded Edmund Lynch to join him, and Merrill, Lynch & Company was born.

The company prospered and grew quickly, earning a strong reputation in financial circles for financing the newly emerging chain-store industry. Merrill himself was a founder of Safeway Stores, and the company underwrote the initial public offering for McCrory Stores. By the late 1920s, Merrill, Lynch was reaping the benefits of that decade’s prolonged economic boom, but Charles Merrill gradually became uneasy about the frantic pace of investment. He predicted that bad times were ahead as early as 1928, warning his clients and his own firm to get ready for an economic downturn. When the crash came in 1929, Merrill, Lynch had already streamlined its operations and invested in low-risk concerns. Despite this foresight, in 1930 Merrill and Lynch decided to sell the firm’s retail business to E.A. Pierce & Company and concentrate on investment banking.

E.A. Pierce & Company was the direct descendant of A.A. Housman & Company. The company was named for Edward Allen Pierce, who had joined Housman in 1901, become a partner in 1915, and the managing partner in 1921. After World War I, Pierce concentrated on building the firm into a nationwide network of branches connected by telegraph, in order to reach more customers. After a 1926 merger with Gwathmey & Company, the firm was renamed E.A. Pierce & Company the following year.

Like most brokers, Pierce struggled through the Depression years, and in 1939 he persuaded Charles Merrill to rejoin him in the retail business. In 1940 Merrill Lynch, E.A. Pierce & Cassati opened its doors, dropping the comma between Merrill and Lynch for the first time and adding Cassait & Co., a Philadelphia firm that had sold part of its business to Pierce and part to Merrill, Lynch in 1935.

The new firm was devoted to the radical concept of offering to its investors a“department store of finance.” Clients were urged to research their financial options, and Merrill Lynch saw itself as a partner in that process, even providing educational materials. In 1941 the firm merged again; this time it became Merrill Lynch, Pierce, Fenner & Beane when it absorbed Fenner & Beane, a New Orleans company that was the nation’s largest commodities house and the second largest“wire house” (an investment firm that, like E.A. Pierce, depended on its private telegraph wires for a broad-based business).

During World War II the company benefited greatly from the economic turnaround brought by increasing military spending. Throughout the bull market of the postwar period and the 1950s, Merrill Lynch continued to be an innovator and a popularizer of financial information. The firm erected a permanent Investment Information Center in Grand Central Station, distributed educational brochures, ran ads with such titles as “What Everybody Ought to Know About This Stock and Bond Business,” and even sponsored investment seminars for women. These new ideas made Merrill Lynch the best-known investment firm of the day. Charles Merrill’s reputation soared to such heights that shortly before his death in 1956 one Wall Street historian referred to him as “the first authentically great man produced by the financial markets in 50 years.”

In 1958 the firm juggled names again. Alpheus Beane, Jr., dropped out of the firm, and since Winthrop Smith had taken over as directing partner two years earlier, the firm was renamed Merrill Lynch, Pierce, Fenner & Smith. The next year it became the first large Wall Street firm to incorporate, and earnings reached a record high of $13 million.

1960s Through Mid-1980s: Diversification and International Expansion

During the 1960s the company began to diversify and expand internationally. In 1964 Merrill Lynch entered the government-securities business when it acquired C.J. Devine, the nation’s largest and most prestigious specialist in that market. Over the course of the decade the firm also entered the fields of real estate financing, asset management, and economic consulting, and added 20 new overseas offices. The company paid special attention to establishing a European presence, which allowed participation in the developing Eurobond market, and by 1964 had succeeded in becoming the first U.S. securities firm in Japan. In that same year Merrill Lynch was named lead underwriter for the $100 million public offering of Comsat, builder of the world’s first telecommunications satellite, thus solidifying its position as one of the country’s major investment banking firms. The company underwrote the sale of Howard Hughes’s TWA stock in 1965, and in the next ten years added significant new business with firms such as Commonwealth Edison, Fruehauf, and Arco. By the end of the decade Merrill was managing about $2 billion annually in such offerings.

One of these projects, a 1966 debenture issue for Douglas Aircraft, led to an investigation by the Securities and Exchange Commission (SEC) and a substantial rewriting of the regulations governing full-service investment firms such as Merrill Lynch. The SEC charged that Merrill had passed on to some of its institutional clients confidential information about Douglas gathered while serving as the latter’s investment banker. The company neither admitted nor denied the allegations but did agree to pay some fines, and the SEC took the opportunity to tighten its rules regarding insider trading and the prevention of unwarranted intraoffice disclosures.

Net income in 1967 was a handsome $55 million, representing an increase of 300 percent during the previous eight years. In the following year, Donald T. Regan was named president of Merrill Lynch, and two years later he became chairman and CEO. Regan guided Merrill Lynch in an ambitious program of diversification aimed at making the company a “one-stop investment and estate-planning institution.” This included Merrill Lynch’s first determined entry into the real estate field with the 1968 acquisition of Hubbard, Westervelt & Motteley, enabling it to offer to customers a range of mortgages, leasebacks, and other options; a major move into the mutual fund markets; and the purchase of Royal Securities Corporation of Canada, significantly strengthening Merrill Lynch’s position in that country.

The firm also absorbed the New York Stock Exchange’s fifth largest brokerage house, Goodbody & Company, in 1970 when that company fell victim to Wall Street’s so-called “paper crunch disaster.” Overextended trading houses were generating more transaction records than their accounting departments could keep up with, resulting, in the case of Goodbody and many others, in massive confusion and eventual collapse. The exchange asked Merrill Lynch to step in and help Goodbody, and Merrill Lynch ended up acquiring the firm at the end of 1970. The bailout cost little and brought Merrill Lynch new expertise in the area of unit trusts and options trading.

In 1971 Merrill Lynch became the second member of the New York Stock Exchange to invite public ownership of its shares, and in July of that year became the first to have its own shares traded there. During the telecast of the World Series that year, Merrill Lynch introduced its famous slogan, “Merrill Lynch is bullish on America.” The company adopted its present name in 1973, forming a holding company called Merrill Lynch & Co., Inc., with Merrill Lynch, Pierce, Fenner & Smith as its principal subsidiary.

Company Perspectives:

Our Vision is to be the preeminent financial management and advisory company in the world. It is a drive firmly rooted in the things we value most: our intelligence, our principles and our optimism. Achieving preeminence is more than a goal. It is a means to an end. Preeminence affords us a leadership position in our chosen markets, a reputation as the best place to work, and the two most important benefits that accrue to the best-managed companies —client and shareholder value second to none.

Regan’s diversification program continued with a 1972 move into international banking. London-based Brown-Shipley Ltd. soon became Merrill Lynch International Bank, and in 1974 Merrill Lynch acquired the Family Life Insurance Company of Seattle, Washington. In 1976 Merrill Lynch formulated a strategy to meet the challenge of the increasingly complex international financial marketplace by offering“a diversified array of securities, insurance, banking, tax, money management, financing, and financial counseling.” Formerly clear demarcations between the various money professions were rapidly blurring, as Merrill Lynch demonstrated in 1977 when it announced the creation of the Cash Management Account (CMA). This unique account allowed individual investors to write checks and make Visa charges against their money market funds. Banks did not appreciate this incursion into their territory and mounted a number of legal campaigns to stop it, to no avail. By 1989, fully half of Merrill Lynch’s $304 billion in customer accounts were placed in CMAs, and most of the other leading brokerage houses had developed similar integrated-investment vehicles.

Despite its sustained attempt to achieve a steady level of profit through diversification, Merrill Lynch’s earnings reflected the volatile nature of its core securities business. For example, 1971 profit reached a new high of $70 million, but was followed by the difficult oil embargo years of 1972-74; and while 1975’s record $100 million was not equaled for several years afterward, 1980 saw record highs of $218 million in profit and $3 billion in revenues. That year also marked the end of the Regan era at Merrill Lynch, as new U.S. President Ronald Reagan named Donald T. Regan secretary of the treasury and later made him White House chief of staff.

Roger Birk became the company’s new chairman and CEO, followed in 1984 by William A. Schreyer. Schreyer, unhappy with Merrill Lynch’s failure to match the earnings of some of its more flamboyant competitors, made increased profitability his chief goal. To that end, Schreyer reorganized the vast company, strengthened its trading, underwriting, and merger and acquisition departments, and made a $1 billion move into new offices in the World Financial Center. The firm also cut spiraling operating costs and trimmed 2,500 employees from its ranks.

In 1985 Merrill Lynch met a longstanding goal when it became one of the first six foreign companies to join the Tokyo Stock Exchange. The following year, when the firm became a member of the London Exchange, Merrill Lynch was able to offer round-the-clock trading. Later in 1986 Merrill Lynch sold its real estate brokerage unit as part of Schreyer’s plan to unload low-profit concerns so that the company could focus more on using its powerful retail divisions to sell the securities its investment banking department brought in. The strategy worked; profits increased to a record $453 million during that year.

Also in 1986, scandal hit when Leslie Roberts, a 23-year-old Merrill Lynch broker, was arrested by the FBI for mail fraud. Roberts’s complex fraud scheme involved huge sums—as much as $10 million from a single investor’s account. The Roberts case typified for many the money fever of pre-crash Wall Street, and the incident attracted international attention.

Key Dates:

1885:

Burnii & Housman is founded as a partnership.

1891:

Following the departure of one of the founders, the company is renamed A.A. Housman & Company, which soon becomes one of Wall Street’s leading brokerage houses.

1901:

Edward Allen Pierce joins A.A. Housman, becoming a partner in 1915.

1915:

Merrill, Lynch & Company is formed by Charles Merrill and Edmund Lynch.

1927:

A.A. Housman is renamed E.A. Pierce & Company.

1930:

Merrill and Lynch, aiming to concentrate on investment banking, sell their retail business to E.A. Pierce.

1935:

Philadelphia-based Cassatt & Co. sells part of its business to Merrill, Lynch and part to E.A. Pierce.

1939:

Merrill, Lynch merges with E.A. Pierce.

1940:

Firm emerges as Merrill Lynch, E.A. Pierce & Cassatt.

1941:

Firm is renamed Merrill Lynch, Pierce, Fenner & Beane following the acquisition of New Orleans-based Fenner & Beane.

1958:

With the departure of Alpheus Beane, Jr., and the naming of Winthrop Smith as a directing partner, the firm changes its name to Merrill Lynch, Pierce, Fenner & Smith.

1959:

Company becomes the first large Wall Street firm to incorporate.

1964:

Firm enters the government-securities business through purchase of C.J. Devine.

1971:

Firm goes public with listing on the New York Stock Exchange.

1972:

Company expands into international banking through acquisition of Brown-Shipley Ltd., which is soon renamed Merrill Lynch International Bank.

1973:

A new holding company is formed called Merrill Lynch & Co., Inc., with Merrill Lynch, Pierce, Fenner & Smith becoming its principal subsidiary.

1977:

Merrill Lynch introduces the Cash Management Account, an innovative integrated-investment vehicle aimed at individuals.

1987:

Wall Street crash sends profits reeling.

1995:

The leading independent securities firm in England, Smith New Court PLC, is acquired.

1997:

Mercury Asset Management PLC, the leading U.K. money management firm, is acquired.

1999:

Merrill Lynch Direct, a web site offering online trading of securities, debuts.

Focusing on Profits Following 1987 Crash

Then in April 1987, the company was caught speculating in hugely unsuccessful fashion when it lost $377 million trading mortgage-backed securities—the largest one-day, one-company trading loss in Wall Street history. Coupled with the crash of October 1987, profits were sent reeling and Merrill Lynch was forced to freeze salaries, cut bonuses, dismiss employees, and slash commission payouts to its sales force. But profits increased dramatically the next year, reaching a record high of $463 million. During 1988 Merrill Lynch also achieved a long-held goal when it edged out Salomon Brothers to become the largest underwriter in the United States. The following year Merrill Lynch realized another long-term goal: the firm became the world leader in debt and equity securities, this time besting First Boston Corporation in the race for the top spot. Merrill Lynch remained in the thick of the hot merger-and-acquisition business as well, earning, for example, a tidy $90 million for helping put together the $25 billion leveraged buyout of RJR Nabisco Inc. that year.

Although Merrill Lynch’s revenue and assets under management grew steadily from 1988 to 1990, its return on equity continued to lag behind other firms in the industry. Observers particularly cited the company’s traditional inability to control costs—according to Business Week, it was“powerful but awkward and overweight…hobbled by a costly, bloated bureaucracy.” Schreyer embarked on an ambitious reorganization that created 18 operating divisions, the managers of which were accountable for all costs therein. Merrill Lynch also downsized, reducing its head count from 48,000 in 1989 to 37,000 in 1991 and eliminating unprofitable subsidiaries such as Merrill Lynch Realty, Inc. and its clearing service Broadcort Capital Corp. It made additional cuts in its non-U.S. operations. Schreyer’s overall cost-containment program paid off by reducing costs $400 million from 1989 to 1991.

Perhaps most important, however, Schreyer changed the mindset of the company from an obsession with generating revenue to a focus on earning profits. Compensation programs tied to the production of revenue were scrapped to make room for new schemes based on return on equity (ROE). Schreyer set an overall company goal of 15 percent ROE, but also held Merrill Lynch divisions to this standard as well. As a result, Merrill Lynch’s ROE figures improved dramatically in the early 1990s—5.8 percent in 1990, 20.8 percent in 1991,22 percent in 1992, and 27.3 percent in 1993. This achievement did not, however, come at the expense of growth. From 1990 to 1993, gross revenues increased from $11.15 billion to $16.59 billion, while assets under management increased from $110 billion to $161 billion. In the midst of this success, Schreyer retired in 1993 and was replaced as chairman and CEO by Daniel P. Tully, who had been president and COO.

By 1994 Merrill Lynch had achieved an average ROE of at least 15 percent across business cycles. Other firms in the industry struggled in 1994 as a series of U.S. Federal Reserve interest rate hikes battered the bond market and reduced underwriting dramatically. Merrill Lynch—though its profits were down significantly in the second, third, and fourth quarters—still managed an ROE of 18.6 percent for the year on record gross revenues of $18.23 billion. Since the company had the ability to offer its customers a full range of financial services and investment opportunities, it could generate revenues—and profits—in all types of market environments. Merrill Lynch’s continuing growth in the global market—highlighted in 1994 by its first-time leadership in Eurobond and global bond underwriting—also promised to help the firm overcome downturns in the economies of individual countries or regions. Another international milestone reached in 1994 was the opening of an office in Beijing, making Merrill Lynch the first U.S. securities firm to open an office in the People’s Republic of China.

The year 1994 did leave a cloud hanging over the otherwise sunny forecast for Merrill Lynch’s future. Orange County, California, was forced to file for bankruptcy late in 1994 after losing nearly $2 billion in a $7.6 billion county investment fund. Throughout the 1990s, the Orange County treasurer had leveraged the fund in order to purchase securities that would increase sharply if interest rates fell. The scheme worked very well until the 1994 Federal Reserve rate hikes sent the fund’s securities into a tailspin. The county subsequently sued Merrill Lynch for $2 billion, claiming that the firm had advised the treasurer to make investments that exceeded state-mandated limits on risk. Merrill Lynch denied that it had done anything wrong, and claimed that it had not been the treasurer’s financial adviser. In 1998, however, Merrill Lynch paid fines in excess of $400 million in connection with its business activities involving Orange County; Merrill Lynch settled related lawsuits over the next few years, paying additional sums to the parties involved.

In mid-1995 Merrill Lynch became the largest investment bank in the world in terms of equity sales, trading, and research through its acquisition of England’s biggest independent securities firm, Smith New Court PLC. With the $803 million purchase, Merrill Lynch not only increased its presence in England but also gained businesses in several countries where it had none, such as South Africa, Malaysia, and Thailand. The acquisition thus brought further geographic diversification to Merrill Lynch’s operations, at the same time that it significantly enhanced the firm’s position in the mergers and acquisitions side of investment banking in Europe. Further international deals and branch openings meant that by 1996,30 percent of revenues was generated outside the United States. Among the deals were the acquisitions of brokerages in Spain (FG Inversiones) and Australia (Mclntosh Securities Limited) and the purchases of stakes in brokerages in Italy, India, Thailand, Indonesia, and South Africa.

In April 1997, 28-year company veteran David H. Komansky succeeded Tully as CEO. Komansky made an immediate impression with the year-end 1997 acquisition of Mercury Asset Management for $5.3 billion in cash. Mercury was the leading money management firm in the United Kingdom with about $170 billion in funds under management. Almost instantly, Merrill Lynch now had an international asset-management business, with overseas strengths in Europe and Asia, and ranked as the third largest retail and institutional money manager in the world with more than $610 billion in assets under management. On a broader basis, Merrill Lynch also became at the end of 1997 the first brokerage firm to have more than $1 trillion in customer assets.

Further expansion in Asia came in 1998 with the purchase of 33 branches and the hiring of 2,100 employees from the failed Japanese firm Yamaichi Securities. Merrill Lynch now had 200 offices located outside the United States, far more than most of its U.S.-based competitors. The firm also acquired Midland Walwyn Inc., a Canadian broker-dealer, in 1998 for $850 million. Net earnings for 1998 suffered, however, from a variety of factors, including the aftereffects of the Asian financial crisis and the meltdown in the Russian economy. Merrill Lynch suffered its first quarter in the red since 1989 when it posted a $900 million bond trading loss in the third quarter of 1998. The firm also had loaned money to the Long-Term Capital Management hedge fund, which nearly collapsed; as part of a bailout led by the Federal Reserve, Merrill Lynch chipped in $300 million. Finally, there was the $400 million in fines from the Orange County debacle. In the midst of these travails, the company announced that it would fire 5 percent of its 64,800-employee workforce.

Meantime, Merrill Lynch cautiously joined in the late 1990s online investing revolution with the 1997 introduction of Merrill Lynch Online, which initially provided only account balances, news, and research reports. Online trading soon followed, but on a limited basis only, as the company had to tread cautiously because of its 18,000 commissioned brokers. Under increasing pressure from Internet-savvy competitors, such as Charles Schwab Corporation, Merrill Lynch belatedly took the plunge into online trading in December 1999 with the launch of Merrill Lynch Direct. This web site offered brokerless trading at $29.95 for stocks, mutual funds, and bonds; access to initial public offerings being underwritten by Merrill Lynch; more research offerings; and other enhancements to its predecessor.

With the repeal in the fall of 1999 of the Glass-Steagall Act, the last barriers between banks, brokerage firms, and insurance companies had been torn down. Early the following year, Merrill Lynch moved into banking with the rollout of a federally insured, interest-bearing account that was tied to customers’ investment accounts. Any cash in such accounts not invested in securities would be swept into the new bank accounts. In December 2000 Merrill Lynch and London-based HSBC Holdings plc launched a joint venture aiming to offer online banking and investment services to people in Europe and Asia having more than $100,000 to invest and wanting to make their own financial decisions. Other developments in 2000 included the acquisition of Herzog Heine Geduld Inc., a leading NASDAQ market maker, and the promotion of E. Stanley O’Neal to head of Merrill Lynch’s brokerage operations, making him the first African American in that position, which was generally considered a stepping stone to the CEO office at Merrill Lynch.

As the markets soured in the latter months of 2000 and into 2001—highlighted of course by the spectacular bursting of the Internet stock bubble—Merrill Lynch began trimming expenses. Noncore units were placed on the block and the company sold its mortgage-servicing and origination unit and its energy-trading business. Some job cutting took place as well, including the elimination of nearly 2,000 jobs in the brokerage unit. In the volatile financial times of the early 21st century, Merrill Lynch, despite its cost-cutting initiatives, appeared to be better positioned to thrive than many of its rivals thanks to its stability, size, and highly diversified operations—diversified both by product and by geography. Proof of this was found in the results for 2000, which were highlighted by record earnings of $3.8 billion, a 41 percent increase over the $2.7 billion figure of the previous year.

Principal Subsidiaries

Merrill Lynch, Pierce, Fenner & Smith Incorporated; Merrill Lynch International (U.K.); Merrill Lynch Government Securities, Inc.; Merrill Lynch Capital Services, Inc.; Merrill Lynch Investment Managers, L.P.; Merrill Lynch Investment Managers Limited (U.K.); Merrill Lynch Bank USA; Merrill Lynch Bank & Trust Co.; Merrill Lynch International Bank Limited (U.K.); Merrill Lynch Capital Markets Bank Limited (Ireland).

Principal Operating Units

Corporate and Institutional Client Group; Private Client Group; Merrill Lynch Investment Managers.

Principal Competitors

Goldman Sachs Group Inc.; Morgan Stanley Dean Witter & Co.; J.P. Morgan Chase & Co.; Citigroup Inc.; Credit Suisse First Boston; The Bear Stearns Companies Inc.; Lehman Brothers Holdings Inc.; Paine Webber Group Inc.; Quick & Reilly/Fleet Securities, Inc.; The Charles Schwab Corporation; Mellon Financial Corporation; Deutsche Bank AG; AXA Financial, Inc.; Nomura Securities International, Inc.; FMR Corp.

Further Reading

“American Municipalities: Merrill Lynched,” Economist, December 17, 1994, pp. 76–78.

Byrnes, Nanette, and Leah Nathans Spiro, “Will Merrill Take a Hit in Orange County?,” Business Week, February 13, 1995, p. 86.

Clifford, Mark L., and Leah Nathans Spiro, “How Merrill Lynch Is Winning the East,” Business Week, September 1, 1997, pp. 79–80.

“The Culprits of Orange County,” Fortune, March 20, 1995, pp. 58–59.

Doherty, Jacqueline, “Ride ’em, Dave: Can Komansky Get the Merrill Lynch Bull to Dance to a Different Tune?,” Barron’s, November 30, 1998, pp. 27–31.

Friedman, Jon, “The Remaking of Merrill Lynch,” Business Week, July 17, 1989, pp. 122–25.

Hecht, Henry, ed., A Legacy of Leadership: Merrill Lynch, 1885–1985, New York: Merrill Lynch, 1985.

Holson, Laura M., “Merrill’s Bull in China’s Shop,” New York Times, March 26, 2000, p. 1.

LaPlante, Alice, “Merrill’s Wired Stampede,” Forbes, June 6, 1994,pp. 76–80.

Lenzer, Robert, “Merrill at the Half-Trillion Mark,” Forbes, April 26,1993, pp. 42–43.

McGeehan, Patrick, “Poised to Take Merrill by the Horns,” New York Times, October 29, 2000, p. 1.

Michels, Antony J., “Get Lean When the Times Are Fat,” Fortune, May 17, 1993, pp. 97–100.

Nash, Jeff, “Merrill Flexes Its Muscle,” Money, March 2001, pp. 52–53.

Norton, Leslie P., “Merrill’s Big Bet: Is Mercury Asset Management Worth What the U.S. Giant Is Paying?,” Barron’s, November 24, 1997, p. 39.

Perkins, Edwin J., Wall Street to Main Street: Charles Merrill and Middle-Class Investors, Cambridge: Cambridge University Press, 1999.

Reed, Stanley, and Leah Nathans Spiro, “A Jolly Good Deal for Merrill Lynch,” Business Week, December 1, 1997, p. 154.

Regan, Donald T., The Merrill Lynch Story, New York: Newcomen Society in North America, 1981.

Savitz, Eric J., “Bull in a China Shop?: Merrill Lynch May Be Getting a Bum Rap from Investors,” Barron’s, September 17, 1990, pp. 10–11, 20.

Schifrin, Matthew, “Merrillizing the World,” Business Week, February 10, 1997, pp. 146–51.

Schifrin, Matthew, and Erika Brown, “The Bull Has an Identity Crisis,” Forbes, May 5, 1999, pp. 108–14.

Spiro, Leah Nathans, “Merrill May Be a Merger Mogul at Last,” Business Week, May 27, 1996, p. 134.

—, “Merrill’s E-Battle,” Business Week, November 15, 1999, pp. 256–60 +.

—, “Raging Bull: The Trimmer New Look of Merrill Lynch,” Business Week, November 25, 1991, pp. 218–21.

Strom, Stephanie, “Japan’s Investors Become Bullish on Merrill Lynch,” New York Times, January 6, 2000, p. CI.

Thornton, Emily, and Stanley Reed, “A Scrambler at Merrill,” Business Week, June 19, 2000, pp. 234–38.

Tully, Shawn, “Merrill Lynch Bulls Ahead,” Fortune, February 19, 1996, pp. 76–79, 82–84.

—, “Merrill Lynch Takes Over,” Fortune, April 27, 1998, pp. 138–40 +.

Wozencraft, Ann, “Bias at the Bull: Merrill Lynch’s Class-Action Settlement Draws a Crowd,” New York Times, February 27, 1999, p. CI.

—Wallace Ross
—update: David E. Salamie

Merrill Lynch & Co., Inc.

North Tower
World Financial Center
New York, New York 10281
U.S.A.
(212) 449–1000

Public Company
Incorporated: 1959
Employees: 43,400
Assets: $64.4 billion
Stock Index: New York Midwest Pacific London Paris Tokyo

Merrill Lynch is the largest retail brokerage house in the United States and a leading investment banker as well. Long committed to the needs of the small investor, Merrill’s nationwide brokerage force now numbers about 11,800, but in recent years the company has become increasingly active in a variety of other investment fields. In 1988, nearly 60% of Merrill’s profits were generated outside the retail business, an indication of how far the company has evolved from its original concentration on what its founder called “people’s capitalism.”

Merrill Lynch’s oldest direct predecessor was the partnership of Burrill & Housman, founded in 1885. In 1890, William Burrill left the firm he had created, and the next year Arthur Housman’s brother Clarence joined what was then A. A. Housman & Company. When Arthur Housman died in 1907, he left behind one of Wall Street’s leading brokerage houses.

That same year, Charles Merrill and Edmund Lynch arrived in New York, where they met and became friends. The two 22-year-old entrepreneurs had both recently finished college and gravitated to Wall Street to seek their fortune. At that time, the stock market was chiefly the domain of a small number of eastern businessmen, but Merrill quickly realized the vast potential of financial markets funded by a broad spectrum of middle-class Americans. He received his initial training in the bond department of Burr & Company, and then set up his own firm in 1914. The following year he persuaded Edmund Lynch to join him, and Merrill, Lynch & Company was born.

The company prospered and grew quickly, earning a strong reputation in financial circles for financing the newly emerging chain store industry. Merrill himself was a founder of Safeway Stores, and the company underwrote the initial public offering for McCrory Stores. By the late 1920s, Merrill, Lynch was reaping the benefits of that decade’s prolonged economic boom, but Charles Merrill gradually became uneasy about the frantic pace of investment. He predicted that bad times were ahead as early as 1928, warning his clients and his own firm to get ready for an economic downturn. When the crash came in 1929, Merrill, Lynch had already streamlined its operations and invested in low-risk concerns. Despite this foresight, in 1930 Merrill and Lynch decided to sell the firm’s retail business to E.A. Pierce & Company and concentrate on investment banking.

E.A. Pierce & Company was the direct descendent of A. A. Housman & Company. The company was named for Edward Allen Pierce, who had joined Housman in 1901, become a partner in 1915, and the managing partner in 1921. After World War I, Pierce concentrated on building the firm into a nationwide network of branches connected by telegraph, in order to reach more customers. After a 1926 merger with Gwathmey & Company, the firm was renamed E.A. Pierce & Company the following year.

Like most brokers, Pierce struggled through the depression years, and in 1939 he persuaded Charles Merrill to rejoin him in the retail business. In 1940, Merrill Lynch, E.A. Pierce & Cassatt opened its doors, dropping the comma between Merrill and Lynch for the first time and adding Cassatt, a Philadelphia firm that had sold part of its business to Pierce and part to Merrill, Lynch in 1935.

The new firm was devoted to the radical concept of offering to its investors a “department store of finance.” Clients were urged to research their financial options, and Merrill Lynch saw itself as a partner in that process, even providing educational materials. In 1941 the firm merged again; this time it became Merrill Lynch, Pierce, Fenner & Beane when it absorbed Fenner & Beane, a New Orleans company that was the nation’s largest commodities house and the second-largest “wire house” (an investment firm that, like E.A. Pierce, depended on its private telegraph wires for a broad-based business).

During World War II the company benefited greatly from the economic turnaround brought by increasing military spending. Throughout the bull market of the postwar period and the 1950s, Merrill Lynch continued to be an innovator and a popularizer of financial information. The firm erected a permanent Investment Information Center in Grand Central Station, distributed educational brochures, ran ads with titles like “What Everybody Ought to Know About this Stock and Bond Business,” and even sponsored investment seminars for women. These new ideas made Merrill Lynch the best-known investment firm of the day. Charles Merrill’s reputation soared to such heights that shortly before his death in 1956 one Wall Street historian referred to him as “the first authentically great man produced by the financial markets in 50 years.”

In 1958 the firm juggled names again. Alpheus Beane Jr. dropped out of the firm, and since Winthrop Smith had taken over as directing partner two years earlier, the firm was renamed Merrill Lynch, Pierce, Fenner & Smith (ML). The next year it became the first large Wall Street firm to incorporate, and earnings reached a record high of $13 million

During the 1960s the company began to diversify and expand internationally. In 1964 Merrill Lynch entered the government-securities business when it acquired C.J. Devine, the nation’s largest and most prestigious specialist in that market. Over the course of the decade the firm also entered the fields of real estate financing, asset management, and economic consulting, and added 20 new overseas offices. The company paid special attention to establishing a European presence, which allowed participation in the developing Eurobond market, and by 1964 had succeeded in becoming the first U.S. securities firm in Japan. In that same year ML was named lead underwriter for the $100 million public offering of Comsat, builder of the world’s first telecommunications satellite, thus solidifying its position as one of the country’s major investment-banking firms. The company underwrote the sale of Howard Hughes’s TWA stock in 1965, and in the next ten years added significant new business with firms such as Commonwealth Edison, Fruehauf, and Arco. By the end of the decade Merrill was managing about $2 billion annually in such offerings.

One of these projects, a 1966 debenture issue for Douglas Aircraft, led to an investigation by the Securities and Exchange Commission (SEC) and a substantial rewriting of the regulations governing full-service investment firms like ML. The SEC charged that Merrill had passed on to some of its institutional clients confidential information about Douglas gathered while serving as the latter’s investment banker. The company neither admitted nor denied the allegations but did agree to pay some fines, and the SEC took the opportunity to tighten its rules regarding insider trading and the prevention of unwarranted intra-office disclosures.

Net income in 1967 was a handsome $55 million, representing an increase of 300% during the past eight years. In the following year, Donald Regan was named president of Merrill Lynch, and two years later he became chairman and CEO. Regan guided ML in an ambitious program of diversification aimed at making the company a “one-stop investment and estate-planning institution.” This included ML’s first determined entry into the real estate field with the 1968 acquisition of Hubbard, Westervelt & Motteley, enabling it to offer to customers a range of mortgages, leasebacks, and other options; a major move into the mutual fund markets; and the purchase of Royal Securities Corporation of Canada, significantly strengthening ML’s position in that country.

The firm also absorbed the New York Stock Exchange’s fifth-largest brokerage house, Goodbody & Company, in 1970 when that company fell victim to Wall Street’s so-called “paper crunch disaster.” Overextended trading houses were generating more transaction records than their accounting departments could keep up with, resulting, in the case of Goodbody and many others, in massive confusion and eventual collapse. The exchange asked ML to step in and help Goodbody, and ML ended up acquiring the firm at the end of 1970. The bailout cost little and brought ML new expertise in the area of unit trusts and options trading.

In 1971 Merrill Lynch became the second member of the New York Stock Exchange to invite public ownership of its shares, and in July of that year became the first to have its own shares traded there. Shortly thereafter, the company adopted its most recent change of name, forming a holding company called Merrill Lynch & Co., Inc., with Merrill Lynch, Pierce, Fenner & Smith as its principal subsidiary.

Regan’s diversification program continued with a 1972 move into international banking. London-based Brown-Shipley Ltd. soon became Merrill Lynch International Bank, and in 1974 ML acquired the Family Life Insurance Company of Seattle, Washington. In 1976 ML formulated a strategy to meet the challenge of the increasingly complex international financial marketplace by offering “a diversified array of securities, insurance, banking, tax, money management, financing, and financial counseling.” Formerly clear demarcations between the various money professions were rapidly blurring, as ML demonstrated in 1977 when it announced the creation of the Cash Management Account (CMA). This unique account allowed individual investors to write checks and make Visa charges against their money market funds. Banks did not appreciate this incursion into their territory and mounted a number of legal campaigns to stop it, all to no avail. By 1989, fully half of ML’s $304 billion in customer accounts were placed in CMAs, and most of the other leading brokerage houses had developed similar integrated-investment vehicles.

Despite its sustained attempt to achieve a steady level of profit through diversification, ML’s earnings have reflected the volatile nature of its core securities business. For example, 1971 profit reached a new high of $70 million, but was followed by the difficult oil-embargo years of 1972–1974; and while 1975’s record $100 million was not equaled for several years afterward, 1980 saw record highs of $218 million in profit and $3 billion in revenues. That year also marked the end of the Regan era at ML, as new President Ronald Reagan named Donald T. Regan secretary of the treasury and later made him White House chief of staff.

Roger Birk became the company’s new chairman and CEO, followed in 1984 by William A. Schreyer. Schreyer, unhappy with ML’s failure to match the earnings of some of its more flamboyant competitors, has made increased profitability his chief goal. To that end, Schreyer reorganized the vast company, strengthened its trading, underwriting, and merger and acquisition departments, and made a $1 billion move into new offices in the World Financial Center. The firm also cut spiraling operating costs and trimmed 2,500 employees from its ranks.

In 1985, ML met a longstanding goal when it became one of the first six foreign companies to join the Tokyo Stock Exchange. The following year, when the firm became a member of the London Exchange, ML was able to offer round-the-clock trading. Later in 1986 ML sold its real estate brokerage unit as part of Schreyer’s plan to unload low-profit concerns so that the company could focus more on using its powerful retail divisions to sell the securities its investment-banking department brought in. The strategy worked; profits increased to a record $453 million during that year.

Also in 1986, scandal hit ML when Leslie Roberts, a 23-year-old broker, was arrested by the FBI for mail fraud. Roberts’s complex fraud scheme lost huge sums—as much as $10 million from a single investor’s account. The Roberts case typified for many the money fever of pre-crash Wall Street, and the incident attracted international attention.

The crash of October, 1987 sent profits reeling and forced ML to freeze salaries, cut bonuses, dismiss employees, and slash commission payouts to its sales force. But profits increased dramatically the next year, reaching a record high of $463 million. During 1988 ML also achieved a long-held goal when it edged out Salomon Brothers to become the largest underwriter in America. The following year ML realized another long-term goal: the firm became the world leader in debt and equity securities, this time besting First Boston Corporation in the race for the top spot. Merrill Lynch remained in the thick of the hot merger-and-acquisition business as well, earning, for example, a tidy $90 million for helping put together the $25 billion leveraged buyout of RJR Nabisco Inc. that year.

With a huge base of loyal customers and its enormous volume of business, Merrill Lynch’s future looks very solid. Its traditional commitment to small investors, coupled with it’s broad range of financial services, will make Merrill Lynch a dificult target for any competitor that dares to challenge its position at the top.

Principal Subsidiaries

Merrill Lynch, Pierce, Fenner & Smith Inc.; Family Life Insurance Co.; Merrill Lynch Asset Management, Inc.; Merrill Lynch Bank & Trust Co.; Merrill Lynch Capital Partners, Inc.; Merrill Lynch Capital Services, Inc.; Merrill Lynch Fiduciary Service, Inc.; Merrill Lynch Futures, Inc.; Merrill Lynch Government Securities, Inc.; Merrill Lynch Group, Inc.; Merrill Lynch International Inc.; Merrill Lynch Options/Futures Management Inc.; Merrill Lynch Realty, Inc.; Merrill Lynch Specialists, Inc.; Merrill Lynch Trust Co.; Merrill Lynch Trust Services, Inc.

Further Reading

Hecht, Henry, ed. A Legacy of Leadership: Merrill Lynch 1885–1985, New York, Merrill Lynch, 1985.

Merrill Lynch & Co., Inc.

World Financial Center
North Tower
New York, New York 10281-1332
U.S.A.
(212) 449-1000
Fax: (212) 449-7357

Public Company
Incorporated: 1959
Employees: 43,800
Total Assets: $163.75 billion
Stock Exchanges: New York Chicago Pacific London Paris
Tokyo
SICs: 6211 Security Brokers & Dealers; 6282 Investment Advice; 6311 Life Insurance; 6719 Holding Companies, Nec

Merrill Lynch & Co., Inc. is the largest retail brokerage house in the United States, the leading U.S. investment banker, and a global leader in debt and equity underwriting, bond underwriting, and merchant banking. Long committed to the needs of the small investor, Merrill continually diversified its offerings from the late 1960s through the 1990s. Now a global giant in the industry, increasingly active in a variety of investment fields outside the retail business, Merrill has evolved far from its original concentration on what its founder called “people’s capitalism.”

Merrill Lynch’s oldest direct predecessor was the partnership of Burrill & Housman, founded in 1885. In 1890 William Burrill left the firm he had created, and the next year Arthur Housman’s brother Clarence joined what was then A. A. Housman & Company. When Arthur Housman died in 1907, he left behind one of Wall Street’s leading brokerage houses.

That same year, Charles Merrill and Edmund Lynch arrived in New York, where they met and became friends. The two 22-year-old entrepreneurs had both recently finished college and gravitated to Wall Street to seek their fortune. At that time, the stock market was chiefly the domain of a small number of eastern businessmen, but Merrill quickly realized the vast potential of financial markets funded by a broad spectrum of middle-class Americans. He received his initial training in the bond department of Burr & Company, and then set up his own firm in 1914. The following year he persuaded Edmund Lynch to join him, and Merrill, Lynch & Company was born.

The company prospered and grew quickly, earning a strong reputation in financial circles for financing the newly emerging chain store industry. Merrill himself was a founder of Safeway Stores, and the company underwrote the initial public offering for McCrory Stores. By the late 1920s, Merrill, Lynch was reaping the benefits of that decade’s prolonged economic boom, but Charles Merrill gradually became uneasy about the frantic pace of investment. He predicted that bad times were ahead as early as 1928, warning his clients and his own firm to get ready for an economic downturn. When the crash came in 1929, Merrill, Lynch had already streamlined its operations and invested in low-risk concerns. Despite this foresight, in 1930 Merrill and Lynch decided to sell the firm’s retail business to E. A. Pierce & Company and concentrate on investment banking.

E. A. Pierce & Company was the direct descendent of A. A. Housman & Company. The company was named for Edward Allen Pierce, who had joined Housman in 1901, become a partner in 1915, and the managing partner in 1921. After World War I, Pierce concentrated on building the firm into a nationwide network of branches connected by telegraph, in order to reach more customers. After a 1926 merger with Gwathmey & Company, the firm was renamed E. A. Pierce & Company the following year.

Like most brokers, Pierce struggled through the depression years, and in 1939 he persuaded Charles Merrill to rejoin him in the retail business. In 1940 Merrill Lynch, E. A. Pierce & Cassatt opened its doors, dropping the comma between Merrill and Lynch for the first time and adding Cassatt, a Philadelphia firm that had sold part of its business to Pierce and part to Merrill, Lynch in 1935.

The new firm was devoted to the radical concept of offering to its investors a “department store of finance.” Clients were urged to research their financial options, and Merrill Lynch saw itself as a partner in that process, even providing educational materials. In 1941 the firm merged again; this time it became Merrill Lynch, Pierce, Fenner & Beane when it absorbed Fenner & Beane, a New Orleans company that was the nation’s largest commodities house and the second-largest “wire house” (an investment firm that, like E. A. Pierce, depended on its private telegraph wires for a broad-based business).

During World War II the company benefited greatly from the economic turnaround brought by increasing military spending. Throughout the bull market of the postwar period and the 1950s, Merrill Lynch continued to be an innovator and a pop-ularizer of financial information. The firm erected a permanent Investment Information Center in Grand Central Station, distributed educational brochures, ran ads with titles like “What Everybody Ought to Know About This Stock and Bond Business,” and even sponsored investment seminars for women. These new ideas made Merrill Lynch the best-known investment firm of the day. Charles Merrill’s reputation soared to such heights that shortly before his death in 1956 one Wall Street historian referred to him as “the first authentically great man produced by the financial markets in 50 years.”

In 1958 the firm juggled names again. Alpheus Beane, Jr., dropped out of the firm, and since Winthrop Smith had taken over as directing partner two years earlier, the firm was renamed Merrill Lynch, Pierce, Fenner & Smith (ML). The next year it became the first large Wall Street firm to incorporate, and earnings reached a record high of $13 million.

During the 1960s the company began to diversify and expand internationally. In 1964 Merrill Lynch entered the government-securities business when it acquired C. J. Devine, the nation’s largest and most prestigious specialist in that market. Over the course of the decade the firm also entered the fields of real estate financing, asset management, and economic consulting, and added 20 new overseas offices. The company paid special attention to establishing a European presence, which allowed participation in the developing Eurobond market, and by 1964 had succeeded in becoming the first U.S. securities firm in Japan. In that same year ML was named lead underwriter for the $100 million public offering of Comsat, builder of the world’s first telecommunications satellite, thus solidifying its position as one of the country’s major investment-banking firms. The company underwrote the sale of Howard Hughes’s TWA stock in 1965, and in the next ten years added significant new business with firms such as Commonwealth Edison, Fruehauf, and Arco. By the end of the decade Merrill was managing about $2 billion annually in such offerings.

One of these projects, a 1966 debenture issue for Douglas Aircraft, led to an investigation by the Securities and Exchange Commission (SEC) and a substantial rewriting of the regulations governing full-service investment firms like ML. The SEC charged that Merrill had passed on to some of its institutional clients confidential information about Douglas gathered while serving as the latter’s investment banker. The company neither admitted nor denied the allegations but did agree to pay some fines, and the SEC took the opportunity to tighten its rules regarding insider trading and the prevention of unwarranted intraoffice disclosures.

Net income in 1967 was a handsome $55 million, representing an increase of 300 percent during the previous eight years. In the following year, Donald T. Regan was named president of Merrill Lynch, and two years later he became chairman and CEO. Regan guided ML in an ambitious program of diversification aimed at making the company a “one-stop investment and estate-planning institution.” This included ML’s first determined entry into the real estate field with the 1968 acquisition of Hubbard, Westervelt & Motteley, enabling it to offer to customers a range of mortgages, leasebacks, and other options; a major move into the mutual fund markets; and the purchase of Royal Securities Corporation of Canada, significantly strengthening ML’s position in that country.

The firm also absorbed the New York Stock Exchange’s fifth-largest brokerage house, Goodbody & Company, in 1970 when that company fell victim to Wall Street’s so-called “paper crunch disaster.” Overextended trading houses were generating more transaction records than their accounting departments could keep up with, resulting, in the case of Goodbody and many others, in massive confusion and eventual collapse. The exchange asked ML to step in and help Goodbody, and ML ended up acquiring the firm at the end of 1970. The bailout cost little and brought ML new expertise in the area of unit trusts and options trading.

In 1971 Merrill Lynch became the second member of the New York Stock Exchange to invite public ownership of its shares, and in July of that year became the first to have its own shares traded there. Shortly thereafter, the company adopted its most recent change of name, forming a holding company called Merrill Lynch & Co., Inc., with Merrill Lynch, Pierce, Fenner & Smith as its principal subsidiary.

Regan’s diversification program continued with a 1972 move into international banking. London-based Brown-Shipley Ltd. soon became Merrill Lynch International Bank, and in 1974 ML acquired the Family Life Insurance Company of Seattle, Washington. In 1976 ML formulated a strategy to meet the challenge of the increasingly complex international financial marketplace by offering “a diversified array of securities, insurance, banking, tax, money management, financing, and financial counseling.” Formerly clear demarcations between the various money professions were rapidly blurring, as ML demonstrated in 1977 when it announced the creation of the Cash Management Account (CMA). This unique account allowed individual investors to write checks and make Visa charges against their money market funds. Banks did not appreciate this incursion into their territory and mounted a number of legal campaigns to stop it, to no avail. By 1989, fully half of ML’s $304 billion in customer accounts were placed in CM As, and most of the other leading brokerage houses had developed similar integrated-investment vehicles.

Despite its sustained attempt to achieve a steady level of profit through diversification, ML’s earnings have reflected the volatile nature of its core securities business. For example, 1971 profit reached a new high of $70 million, but was followed by the difficult oil-embargo years of 1972–74; and while 1975’s record $100 million was not equaled for several years afterward, 1980 saw record highs of $218 million in profit and $3 billion in revenues. That year also marked the end of the Regan era at ML, as new U.S. President Ronald Reagan named Donald T. Regan secretary of the treasury and later made him White House chief of staff.

Roger Birk became the company’s new chairman and CEO, followed in 1984 by William A. Schreyer. Schreyer, unhappy with ML’s failure to match the earnings of some of its more flamboyant competitors, made increased profitability his chief goal. To that end, Schreyer reorganized the vast company, strengthened its trading, underwriting, and merger and acquisition departments, and made a $1 billion move into new offices in the World Financial Center. The firm also cut spiraling operating costs and trimmed 2,500 employees from its ranks.

In 1985 ML met a longstanding goal when it became one of the first six foreign companies to join the Tokyo Stock Exchange. The following year, when the firm became a member of the London Exchange, ML was able to offer round-the-clock trading. Later in 1986 ML sold its real estate brokerage unit as part of Schreyer’s plan to unload low-profit concerns so that the company could focus more on using its powerful retail divisions to sell the securities its investment-banking department brought in. The strategy worked; profits increased to a record $453 million during that year.

Also in 1986, scandal hit when Leslie Roberts, a 23-year-old Merrill Lynch broker, was arrested by the FBI for mail fraud. Roberts’s complex fraud scheme lost huge sums—as much as $10 million from a single investor’s account. The Roberts case typified for many the money fever of pre-crash Wall Street, and the incident attracted international attention.

Then in April 1987, the company was caught speculating in hugely unsuccessful fashion when it lost $377 million trading mortgage-backed securities—the largest one-day, one-company trading loss in Wall Street history. Coupled with the crash of October 1987, profits were sent reeling and ML was forced to freeze salaries, cut bonuses, dismiss employees, and slash commission payouts to its sales force. But profits increased dramatically the next year, reaching a record high of $463 million. During 1988 ML also achieved a long-held goal when it edged out Salomon Brothers to become the largest underwriter in America. The following year ML realized another long-term goal: the firm became the world leader in debt and equity securities, this time besting First Boston Corporation in the race for the top spot. Merrill Lynch remained in the thick of the hot merger-and-acquisition business as well, earning, for example, a tidy $90 million for helping put together the $25 billion leveraged buyout of RJR Nabisco Inc. that year.

Although Merrill Lynch’s revenue and assets under management grew steadily from 1988 to 1990, its return on equity continued to lag behind other firms in the industry. Observers in particular cited the company’s traditional inability to control costs—according to Business Week, it was “powerful but awkward and overweight ... hobbled by a costly, bloated bureaucracy.” Schreyer embarked on an ambitious reorganization which created 18 operating divisions, the managers of which were accountable for all costs therein. ML also downsized, reducing its head count from 48,000 in 1989 to 37,000 in 1991 and eliminating unprofitable subsidiaries such as Merrill Lynch Realty, Inc. and its clearing service Broadcort Capital Corp. It made additional cuts in its non-U.S. operations. Schreyer’s overall cost-containment program paid off by reducing costs $400 million dollars from 1989 to 1991.

Perhaps most importantly, however, Schreyer changed the mind-set of the company from an obsession with generating revenue to a focus on earning profits. Compensation programs tied to the production of revenue were scrapped to make room for new schemes based on return on equity (ROE). Schreyer set an overall company goal of 15 percent ROE, but also held ML divisions to this standard as well. As a result, Merrill Lynch’s ROE figures improved dramatically in the early 1990s—5.8 percent in 1990, 20.8 percent in 1991, 22 percent in 1992, and 27.3 percent in 1993. This achievement did not, however, come at the expense of growth. From 1990 to 1993, gross revenues increased from $11.15 billion to $16.59 billion, while assets under management increased from $110 billion to $161 billion. In the midst of this success, Schreyer retired in 1993 and was replaced as chairman and CEO by Daniel P. Tully, who had been president and COO.

By 1994 ML had perhaps achieved a long-held goal of diversification to such a degree that it could achieve an average ROE of 15 percent across business cycles. Other firms in the industry struggled in 1994 as a series of U.S. Federal Reserve interest rate hikes battered the bond market and reduced underwriting dramatically. Merrill Lynch—though its profits were down significantly in the second, third, and fourth quarters—still managed a ROE of 18.6 percent for the year on record gross revenues of $18.23 billion. Since the company had the ability to offer its customers a full range of financial services and investment opportunities, it could generate revenues—and profits— in all types of market environments. ML’s continuing growth in the global market—highlighted in 1994 by its first-time leadership in Eurobond and global bond underwriting—also promised to help the firm overcome downturns in the economies of individual countries or regions.

1994 did leave a cloud hanging over the otherwise sunny forecast for Merrill Lynch’s future. Orange County, California, was forced to file for bankruptcy late in 1994 after losing nearly $2 billion in a $7.6 billion county investment fund. Throughout the 1990s, the Orange County treasurer had leveraged the fund in order to purchase securities that would increase sharply if interest rates fell. The scheme worked very well until the 1994 Federal Reserve rate hikes sent the fund’s securities into a tailspin. The county subsequently sued ML for $2 billion, claiming that the firm had advised the treasurer to make investments that exceeded state-mandated limits on risk. Merrill Lynch denied that it had done anything wrong, and claimed that it had not been the treasurer’s financial adviser.

In mid-1995 Merrill Lynch became the largest investment bank in the world in terms of equity sales, trading, and research through its acquisition of England’s biggest independent securities firm, Smith New Court PLC. With the $842 million purchase, ML not only increased its presence in England but also gained businesses in several countries where it had none, such as South Africa, Malaysia, and Thailand. The acquisition thus brough further geographic diversification to Merrill Lynch’s operations.

In the difficult environment of the mid-1990s financial services industry, Merrill Lynch was at the top and nearing its goal of “being the world’s preeminent financial management and advisory company.” If observers’ predictions of an impending shakeout in the industry were to come to pass, the company was well positioned to take advantage of the fallout and strengthen its hold on various segments of the industry.

Principal Subsidiaries

Merrill Lynch, Pierce, Fenner & Smith Inc.; Helmco-Lacy; Merrill Lynch Bank & Trust Co.; Merrill Lynch Business Financial Services Inc.; Merrill Lynch Capital Partners, Inc.; Merrill Lynch Capital Services, Inc.; Merrill Lynch Credit Corporation; Merrill Lynch Derivative Products, Inc.; Merrill Lynch Fiduciary Services, Inc.; Merrill Lynch Futures Investment Partners Inc.; Merrill Lynch Government Securities, Inc.; Merrill Lynch Group, Inc.; Merrill Lynch, Hubbard, Inc.; Merrill Lynch Insurance Group, Inc. (50%); Merrill Lynch Interfunding Inc.; Merrill Lynch International, Inc.; Merrill Lynch Investment Management, Inc.; Merrill Lynch Life Agency Inc.; Merrill Lynch Money Markets Inc.; Merrill Lynch Private Capital Inc.; Merrill Lynch Specialists, Inc.; Merrill Lynch Trust Company; Star Manufacturing Co.; Wagner Stott Clearing Corp.

Further Reading

“American Municipalities: Merrill Lynched,” Economist, December 17, 1994, pp. 76–78.

Byrnes, Nanette, and Leah Nathans Spiro, “Will Merrill Take a Hit in Orange County?,” Business Week, February 13, 1995, p. 86.

“The Culprits of Orange County,” Fortune, March 20, 1995, pp. 58–59.

Friedman, Jon, “The Remaking of Merrill Lynch,” Business Week, July 17, 1989, pp. 122–25.

Hecht, Henry, ed., A Legacy of Leadership: Merrill Lynch 1885–1985, New York: Merrill Lynch, 1985, 151 p.

LaPlante, Alice, “Merrill’s Wired Stampede,” Forbes, June 6, 1994, pp. 76–80.

Lenzer, Robert, “Merrill at the Half-Trillion Mark,” Forbes, April 26, 1993, pp. 42–43.

Michels, Antony J., “Get Lean When the Times Are Fat,” Fortune, May 17, 1993, pp. 97–100.

Regan, Donald T., The Merrill Lynch Story, New York: Newcomen Society in North America, 1981, 22 p.

Savitz, Eric J., “Bull in a China Shop?: Merrill Lynch May Be Getting a Bum Rap from Investors,” Barron’s, September 17, 1990, pp. 10–11, 20.

Spiro, Leah Nathans, “Raging Bull: The Trimmer New Look of Merrill Lynch,” Business Week, November 25, 1991, pp. 218–21.

—updated by David E. Salamie