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Merrill Lynch
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Merrill Lynch & Co., Inc. is a global financial services firm which was acquired by Bank of America. This article describes both the historical Merrill Lynch and its ongoing operations as a subsidiary of the bank. Merrill Lynch provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related financial services worldwide. Merrill Lynch is headquartered in New York City, and occupies the entire 34 stories of the Four World Financial Center building in Manhattan.
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Merrill Lynch & Co., Inc. is a global financial services firm which was acquired by Bank of America. This article describes both the historical Merrill Lynch and its ongoing operations as a subsidiary of the bank. Merrill Lynch provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related financial services worldwide. Merrill Lynch is headquartered in New York City, and occupies the entire 34 stories of the Four World Financial Center building in Manhattan. On September 14, 2008 Bank of America announced its intention to acquire Merrill Lynch for Bank of America common stock. Under the terms of the agreement Merrill Lynch shareholders receive 0.8595 shares of Bank of America stock. Shareholders of both companies approved the acquisition on December 5, 2008 which took effect January 1, 2009.
History
The company was founded on January 6, 1914, when Charles E. Merrill & Co. opened for business at 7 Wall Street in New York City. A few months later, Merrill's friend, Edmund C. Lynch, joined him, and in 1915 the name was officially changed to Merrill, Lynch & Co. At that time, the firm's name included a comma between Merrill and Lynch. In 1916, Winthrop H. Smith joined the firm.
In its early history, Merrill, Lynch & Co. made several successful investments. In 1921, the company purchased Pathé Exchange, which later became RKO Pictures. In 1926, the firm made its most significant financial investment at the time, purchasing a controlling interest in Safeway, transforming the small grocery store into the country's third largest grocery store chain by the early 1930s. Following this investment, the company further increased its investment banking focus by transferring its retail brokerage services to E.A. Pierce.
In 1940, the firm merged with E. A. Pierce & Co. and Cassatt & Co. and was briefly known as Merrill Lynch, E. A. Pierce, and Cassatt. The company became the first on Wall Street to publish an annual fiscal report in 1941. Also in 1941, Fenner & Beane joined the firm, and the name became Merrill Lynch, Pierce, Fenner & Beane. After Edmund Lynch's death in 1952, the company changed its name to Merrill Lynch & Co. and was officially incorporated. On December 31, 1957, The New York Times referred to that name as "a sonorous bit of Americana" and said "After sixteen years of popularizing [it], Merrill Lynch, Pierce, Fenner, and Beane is going to change it—and thereby honor the man who has been largely responsible for making the name of a brokerage house part of an American saga," Winthrop H. Smith, who had been running the company since 1940. The merger made the company the largest securities firm in the world, with offices in over 98 cities and membership on 28 exchanges. At the start of the firm's fiscal year on March 1 1958, the firm's name became Merrill Lynch, Pierce, Fenner & Smith and the company became a Big Board member of the New York Stock Exchange.
Merrill Lynch rose to prominence on the strength of its brokerage network (15,000+ as of 2006), sometimes referred to as the "thundering herd", that allowed it to place securities it underwrote directly. In contrast, many established Wall Street firms, such as Morgan Stanley, relied on groups of independent brokers for placement of the securities they underwrote. Until as late as 1970, it was known as the "Catholic" firm of Wall Street. The firm went public in 1971 and has since become a multinational corporation with over US $1.8 trillion in client assets, operating in more than 40 countries around the world. In 1978, it significantly buttressed its securities underwriting business by acquiring White Weld & Co., a small but prestigious old-line investment bank. Merrill Lynch is best known for its Global Private Client services and its strong sales force.
On November 1, 2007, Merrill Lynch CEO Stanley O'Neal left the company, after being criticized for the way he handled the firm's risk management and the subprime mortgage crisis, which resulted in about US $2.24 billion in unexpected losses, and for discussing in public the possible merger with Wachovia banking corporation, without being authorized by the board to do so. He left Merrill Lynch with about US $161 million worth of stock options and retirement benefits. John Thain, CEO of the New York Stock Exchange, succeeded him as CEO on December 1, 2007.
On January 17, 2008, Merrill Lynch reported a $9.83 billion fourth quarter loss incorporating a $16.7 billion write down of assets associated with subprime mortgages. On April 17, 2008, Merrill Lynch reported a net loss of $1.97 billion for the first quarter of 2008.
Merrill responded to its losses by raising capital through the sale of preferred shares, however experts suggest that such a strategy may pose a risk to the company's credit rating which could cause an increase to the company's borrowing costs.
On January 22, 2009 John Thain resigned as CEO of the company after it was disclosed that he had rushed to pay out $3-4 billion dollars in fourth quarter bonuses to Merrill employees by the end of 2008, just prior to Bank of America's acquisition of the company became final. Thain allegedly did not disclose the bonus payouts to Bank of America negotiators. Bank of America has recently asked the United States Treasury for an additional $20 billion in emergency capital, primarily in order to cover losses at its Merrill Lynch subsidiary. Thain was also named as a co-defendant in a class-action lawsuit filed by shareholders against Bank of America and Merrill Lynch on January 22, 2009. The suit alleges that Bank of America CEO Ken Lewis, ex-Merrill Chief Financial Officer Nelson Chai, ex-Merrill Chief Accounting Officer Gary Carlinand, and Thain failed to warn shareholders of the magnitude of Merrill's losses prior to the Bank of America acquisition.
Subprime mortgage crisis and sale to Bank of America
In November 2007, Merrill Lynch announced it would write-down $8.4 billion in losses associated with the national housing crisis and remove E. Stanley O'Neal as its chief executive. O'Neal had earlier approached Wachovia bank for a merger, without prior Board approval, but the talks ended after O'Neal's dismissal. In December 2007, the firm announced it would sell its commercial finance business to General Electric and sell off major shares of its stock to Temasek Holdings, a Singapore investment group, in an effort to raise capital. The deal raised over $6 billion. In July of 2008, the new CEO of Merrill Lynch, John Thain, announced $4.9 billion fourth quarter losses for the company from defaults and bad investments in the ongoing mortgage crisis. In one year between July 2007 and July 2008, Merrill Lynch lost $19.2 billion, or $52 million daily. The company's stock price had also declined significantly during that time. Two weeks later, the company announced the sale of select hedge funds and securities in an effort to reduce their exposure to mortgage related investments. Temasek Holdings agreed to purchase the funds and increase its investment in the company by $3.4 billion.
Andrew Cuomo, New York Attorney General, threatened to sue Merrill Lynch in August 2008, over their misrepresentation of the risk on mortgage-back securities. A week earlier, Merrill Lynch had offered to buy back $12 billion in auction-rate debt and said they were surprised by the lawsuit. Three days later, the company froze hiring and revealed that they had charged almost $30 billion in losses to their subsidiary in the United Kingdom, exempting them from taxes in that country. On August 22, 2008, CEO John Thain announced an agreement with the Massachusetts Secretary of State to buy back all auction-rate securities from customers with less than $100 million in deposit with the firm, beginning in October 2008 and expanding in January 2009. On September 5, 2008 Goldman Sachs downgraded Merrill Lynch's stock to "conviction sell" and warned of further losses from the company. Bloomberg reported in September 2008 that Merrill Lynch had lost $51.8 billion in mortgage-backed securities as part of the subprime mortgage crisis.
Significant losses were attributed the drop in value of its large and unhedged mortgage portfolio in the form of Collateralized Debt Obligations. Trading partner's loss of confidence in Merrill Lynch's solvency and ability to refinance short-term debt ultimately led to its sale. On September 14, 2008, Bank of America announced it was in talks to purchase Merrill Lynch for $38.25 billion in stock. The Wall Street Journal reported later that day that Merrill Lynch was sold to Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share, or about US$50 billion or $29 per share. This price represented a 70.1% premium over the September 12 closing price or a 38% premium over Merrill's book value of $21 a share, but that also meant a discount of 61% from its September 2007 price.
Improper sale of Class B and C mutual fund shares
On December 19, 2005, the NASD (now FINRA) announced it had fined Merrill Lynch, Pierce, Fenner & Smith, Wells Fargo Investments and Linsco/Private Ledger Corporation a total of $19.4 million for suitability and supervisory violations related primarily to sales of Class B mutual fund shares as well as some Class C mutual fund shares. Merrill Lynch was fined $14 million.
Charges of discrimination towards minority employees
In July 2006, a lawsuit alleging discriminatory hiring and promotion practices was brought by over 70 current and former African-American employees. Following commencement of the action, additional employees joined the suit and counsel is now seeking class-action status. These legal actions remain unresolved as of May 2008.
On June 26, 2007, the U.S. Equal Employment Opportunity Commission (EEOC) brought suit against Merrill Lynch, alleging the firm discriminated against because of his Iranian nationality and Islamic religion, with "reckless disregard" for his protected civil rights. The EEOC law suit maintains that violations by members of the firm were intentional and committed with malice. In another case concerning mistreatment of another Iranian employee by Merrill Lynch on July 20, 2007, less than a month after EEOC law suit, a NASD arbitration panel ordered Merrill Lynch to pay its former Iranian employee, Fariborz Zojaji, $1.6 million for firing him due to his Persian ethnicity. Merrill Lynch's actions prompted reactions from both the National Iranian-American council, and the American-Arab Anti-Discrimination Committee.
In its June 2008 issue, Diversity Inc. named Merrill Lynch one of the top 10 companies for lesbian, gay, bisexual, and transgendered employees, and the #7 top company in the US for diversity overall. In 2007, Merrill Lynch was named the #2 best company in the US for people with disabilities by Diversity Magazine. As of June 5, 2008, Merrill Lynch has created the West Asian, Middle Eastern and North African (WAMENA) Professional Network to help support and provide additional resources for employees of diverse backgrounds. In May 2008, Merrill Lynch was named the #1 US company for "Diverse College Graduates" by Diversity Edge magazine, edging out Microsoft for the top spot on the rankings.
New Jersey appeals court on August 13, 2008 rendered a ruling against Merrill Lynch in a discrimination law suit filed by a gay employee.
See also
Further reading
External links
- - Merrill Lynch settling conflict of interest charges
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