Merrill (company)

Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded
Merrill Lynch, is an American investment management and wealth management division of
Bank of America. Along with BofA Securities, the investment banking arm, both firms engage
in prime brokerage and broker-dealer activities. The firm is headquartered in New York City,
and once occupied the entire 34 stories of 250 Vesey Street, part of the Brookfield Place
complex in Manhattan. Merrill employs over 14,000 financial analysts and manages $2.3
trillion in client assets.[2] The company also operates Merrill Edge, an electronic trading
platform.

Prior to 2009, the company was publicly owned and traded on the New York Stock
Exchange. Merrill Lynch & Co. agreed to be acquired by Bank of America on September 14,
2008, at the height of the financial crisis of 2007–2008, the same weekend that Lehman
Brothers was allowed to fail. The acquisition was completed in January 2009[3] and Merrill
Lynch & Co., Inc. was merged into Bank of America Corporation in October 2013, with
certain Bank of America subsidiaries continuing to carry the Merrill Lynch name, including
the broker-dealer Merrill Lynch, Pierce, Fenner & Smith.[4][5] In 2019, Bank of America
rebranded the unit to "Merrill".[6]

Merrill Lynch rose to prominence on the strength of its network of financial advisors,
sometimes referred to as the "thundering herd", that allowed it to place securities it
underwrote directly.[7] In contrast, many established Wall Street firms, such as Morgan
Stanley, relied on groups of independent brokers for placement of the securities they
underwrote.[8] It was once known as the "Catholic" firm of Wall Street[9] and most of its
executives were Irish Catholics.[10]
Merrill Lynch, Pierce, Fenner &

History Smith Incorporated

Trade name Merrill

Type Division

Merrill Lynch logo before the rebranding in February

Industry Financial services
2019

Founded January 6, 1914

Founders Charles E. Merrill

Founding and early history Edmund C. Lynch

The company was founded on January 6, Headquarters 250 Vesey Street,

New York City, New
1914, when Charles E. Merrill opened York, U.S.
Charles E. Merrill & Co. for business at 7 Wall
Area served Worldwide
Street in New York City.[11] A few months
later, Merrill's friend, Edmund C. Lynch, Services Investment
joined him, and in 1915 the name was management

officially changed to Merrill, Lynch & Co.[12] Revenue US$13.8 billion

At that time, the firm's name included a (2012)[1]

comma between Merrill and Lynch, which Operating income −2,300,000,000

was dropped in 1938.[13] In 1916, Winthrop United States dollar
(2012) 
H. Smith joined the firm.
Net income 290,000,000 United
States dollar (2012) 

Total assets 603,000,000,000

United States dollar
(2012) 

Number of 15,100 (Financial

employees Advisors as of 2010)

Parent Bank of America

Merrill Lynch logo c. 1917
Divisions Merrill Lynch Wealth
Management
 Merrill Private Wealth
In 1921, the company purchased Pathé Management

Exchange, which later became RKO Merrill Guided

Investing
Pictures. In 1926, the firm acquired a
controlling interest in Safeway Inc., Merrill Edge

transforming the small grocery store into the Website www.merrill.com

(https://www.merri
country's third-largest grocery store chain
ll.com/)
by the early 1930s.[14]

In 1930, Charles E. Merrill led the firm through a major restructuring, spinning-off the
company's retail brokerage business to E. A. Pierce & Co. to focus on investment
banking.[15][16] Along with the business, Merrill also transferred the bulk of its employees,
including Edmund C. Lynch and Winthrop H. Smith. Charles Merrill received a minority
interest in E.A. Pierce in the transaction. Throughout the 1930s, E.A. Pierce remained the
largest brokerage in the U.S. The firm, led by Edward A. Pierce, Edmund Lynch and Winthrop
Smith proved to be one of the most innovative in the industry, introducing IBM machines into
the business' record keeping. Additionally, by 1938, E.A. Pierce controlled the largest wire
network with a private network of over 23,000 miles of telegraph wires. These wires were
typically used for orders.[17]

E. A. Pierce & Co. (above) merged with

Merrill Lynch in 1940. The following year
Fenner & Beane (below) was acquired by
the firm

Despite its strong position in the market, E.A. Pierce was struggling financially in the 1930s
and was thinly capitalized.[18] Following the death of Edmund C. Lynch in 1938, Winthrop
Smith began discussions with Charles E. Merrill, who owned a minority interest in E.A. Pierce
about a possible merger of the two firms. On April 1, 1940, Merrill Lynch, merged with
Edward A. Pierce's E. A. Pierce & Co. and Cassatt & Co., a Philadelphia-based brokerage
firm in which both Merrill Lynch and E.A. Pierce held an interest.[18] and was briefly known as
Merrill Lynch, E. A. Pierce, and Cassatt.[19] The company became the first on Wall Street to
publish an annual fiscal report in 1941.

Merrill Lynch, Pierce, Fenner & Smith logo in use prior to the firm's 1974 rebranding that introduced the "bull" logo

In 1941, Merrill Lynch, E. A. Pierce, and Cassatt merged with Fenner & Beane, a New
Orleans-based investment bank and commodities company. Throughout the 1930s, Fenner
& Beane was consistently the second largest securities firm in the U.S. The combined firm,
which became the clear leader in securities brokerage in the U.S., was renamed Merrill
Lynch, Pierce, Fenner & Beane.[20]

Post-war years

In 1952, the company formed Merrill Lynch & Co. as a holding company and officially
incorporated after nearly half a century as a partnership.[21] 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.[22] The merger made the company the largest securities firm in the world, with
offices in more than 98 cities and membership on 28 exchanges.[22] 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 member of the New York Stock Exchange.[22]

In 1964, Merrill Lynch acquired C. J. Devine & Co., the leading dealer in U.S. Government
Securities. The merger came together due to the death of Christopher J. Devine in May
1963.[23] The C. J. Devine & Co. partners, referred to as "The Devine Boys", formed Merrill
Lynch Government Securities Inc., giving the firm a strong presence in the government
securities market. The Government Securities business brought Merrill Lynch the needed
leverage to establish many of the unique money market products and government bond
mutual fund products, responsible for much of the firm's growth in the 1970s and 1980s.[24]

In June 1971, the company became a public company via an initial public offering, a year
after the New York Stock Exchange allowed member firms to become publicly-owned.[25] It
was a multinational corporation with over US$1.8 trillion in client assets, operating in more
than 40 countries around the world.

In 1977, the company introduced its Cash management account (CMA), which enabled
customers to sweep all their cash into a money market fund, and included check-writing
capabilities and a credit card.[26][27]

In 1978, it significantly buttressed its securities underwriting business by acquiring White

Weld & Co., a small but prestigious old-line investment bank.[28][29]

In the late 1990s, Maxim Shashenkov (Russian: Максим Шашенков), who was in charge of
Alfa-Bank's Alfa Securities Ltd, London, of the Alfa Group of companies, was formerly Vice
President for Russia of the London branch of Merrill Lynch.[30]

Canadian operations in the 1990s

In 1990, the company sold its Canadian private client operations to CIBC Wood Gundy.[31]

In June 1998, Merrill Lynch re-entered the Canadian investment business with its purchase of
Midland Walwyn Inc.[32] At the time, Canada was the seventh-largest market for personal
investment.[33]

In December 2001, Merrill Lynch sold Midland Walwyn to CIBC Wood Gundy.[34]

Investment in TMS Entertainment (2003)

In 2003, Merrill Lynch became the second-largest shareholder of Japanese animation studio
TMS Entertainment. In a report to the Finance Ministry, the Merrill Lynch group said it had
acquired a 7.54% stake in TMS by purchasing 3.33 million shares. Merrill Lynch purchased
the stake purely for investment purposes and had no intention of acquiring control of the
firm's management.[35]

Subprime mortgage crisis

In November 2007, Merrill Lynch announced it would write-down $8.4 billion in losses
associated with the subprime mortgage crisis, and terminated E. Stanley O'Neal as its chief
executive.[36] O'Neal had earlier approached Wachovia for a merger, without prior Board
approval, but the talks ended after O'Neal's dismissal.[36] Merrill Lynch named John Thain as
its new CEO that month.[36] In his first days at work in December 2007, Thain made changes
in Merrill Lynch's top management, announcing that he would bring in former New York
Stock Exchange (NYSE) colleagues such as Nelson Chai as CFO and Margaret D. Tutwiler as
head of communications.[37][38] Later that month, the firm announced it would sell its
commercial finance business to General Electric, and would sell shares of its stock to
Temasek Holdings, a Singapore government investment group, in an effort to raise
capital.[39] The deal raised more than $6 billion.[39]

In July 2008, Thain announced $4.9 billion fourth-quarter losses for the company from
defaults and bad investments in the ongoing mortgage crisis.[40] In one year between July
2007 and July 2008, Merrill Lynch lost $19.2 billion, or $52 million daily.[40] The company's
stock price had also declined significantly during that time.[40] 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.[41] Temasek Holdings agreed to purchase the funds and
increase its investment in the company by $3.4 billion.[42]

Then-New York Attorney General Andrew Cuomo threatened to sue Merrill Lynch in August
2008 over its misrepresentation of the risk on mortgage-backed securities.[43] A week
earlier, Merrill Lynch had offered to buy back $12 billion in auction-rate debt and said it was
surprised by the lawsuit.[43] Three days later, the company froze hiring and revealed that it
had charged almost $30 billion in losses to its subsidiary in the United Kingdom, exempting
them from taxes in that country.[44] On August 22, 2008, CEO John Thain announced an
agreement with the Massachusetts Secretary of the Commonwealth 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.[45] On September 5, 2008 Goldman Sachs
downgraded Merrill Lynch's stock to "conviction sell" and warned of further losses at the
company.[46] Bloomberg reported in September 2008 that Merrill Lynch had lost $51.8
billion on mortgage-backed securities as part of the subprime mortgage crisis.[46]

CDO losses
Merrill Lynch, like many other banks, became heavily involved in the mortgage-based
collateralized debt obligation (CDO) market in the early 2000s. According to an article in
Credit magazine, Merrill's rise to be the leader of the CDO market began in 2003 when
Christopher Ricciardi brought his CDO team from Credit Suisse First Boston to Merrill.[47]

To provide a ready supply of mortgages for the CDOs, Merrill purchased First Franklin
Financial Corp., one of the largest subprime lenders in the country, in December 2006.[48]
Between 2006 and 2007, Merrill was "lead underwriter" on 136 CDOs worth $93 billion. By
the end of 2007, the value of these CDOs was collapsing, but Merrill had held onto portions
of them, creating billions of dollars in losses for the company.[49] In mid-2008, Merrill sold a
group of CDOs that had once been valued at $30.6 billion to Lone Star Funds for $1.7 billion
in cash and a $5.1 billion loan.[50][51]

In April 2009, bond insurance company MBIA sued Merrill Lynch for fraud and five other
violations. These were related to the credit default swap "insurance" contracts Merrill had
bought from MBIA on four of Merrill's mortgage-based collateralized debt obligations. These
were the "ML-Series" CDOs, Broderick CDO 2, Highridge ABS CDO I, Broderick CDO 3, and
Newbury Street CDO. MBIA claimed, among other things, that Merrill defrauded MBIA about
the quality of these CDOs, and that it was using the complicated nature of these particular
CDOs (CDOs squared and cubed) to hide the problems it knew about in the securities that
the CDOs were based on. However, in 2010 Justice Bernard Fried disallowed all but one of
the charges: the claim by MBIA that Merrill had committed breach of contract by promising
the CDOs were worthy of an AAA rating when, it alleges, in reality, they weren't. When the
CDOs lost value, MBIA wound up owing Merrill a large amount of money. Merrill disputed
MBIA's claims.[52][53][54]

In 2009, Rabobank sued Merrill over a CDO named Norma. Rabobank later claimed that its
case against Merrill was very similar to the SEC's fraud charges against Goldman Sachs and
its Abacaus CDOs. Rabobank alleged that a hedge fund named Magnetar Capital had chosen
assets to go into Norma, and allegedly bet against them, but that Merrill had not informed
Rabobank of this fact. Instead, Rabobank alleges that Merrill told it that NIR Group was
selecting the assets. When the CDO value tanked, Rabobank was left owing Merrill a large
amount of money. Merrill disputed the arguments of Rabobank, with a spokesman claiming
"The two matters are unrelated and the claims today are not only unfounded but weren't
included in the Rabobank lawsuit filed nearly a year ago".[55][56][57][58]

Sale to Bank of America

Significant losses were attributed to the drop in value of its large and unhedged mortgage
portfolio in the form of collateralized debt obligations. Trading partners' loss of confidence in
Merrill Lynch's solvency and ability to refinance money market obligations ultimately led to its
sale.[59][60] During the week of September 8, 2008, Lehman Brothers came under severe
liquidity pressures, with its survival in question. If Lehman Brothers failed, investors were
afraid that the contagion could spread to the other surviving investment banks. On Sunday,
September 14, 2008, Bank of America announced it was in talks to purchase Merrill Lynch for
$38.25 billion in stock.[61] Later that day, 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.[62][63] 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,[64] but a discount of 61% from its September 2007 price.[65]

Congressional testimony by Bank of America CEO Kenneth Lewis, as well as internal emails
released by the House Oversight Committee, indicated that the merger was transacted under
pressure from federal officials, who said that they would otherwise seek the replacement of
Bank of America's management as a condition of any government assistance.[66][67] In
March 2009, it was reported that in 2008, Merrill Lynch received billions of dollars from its
insurance arrangements with AIG, including $6.8 billion from funds provided by the United
States government to bail out AIG.[68][69]

Post-merger with Bank of America

After merging Merrill Lynch into its businesses, Bank of America continued to operate Merrill
Lynch for its wealth management services and integrated Merrill Lynch's investment bank
into the newly formed BofA Securities.

Launch of Merrill Edge

On June 21, 2010, the company launched Merrill Edge, an electronic trading platform.[70]

Rebranding
In February 2019, Bank of America announced the division was to be rebranded from "Merrill
Lynch" to "Merrill".[71]

Regulatory actions

Orange County settlement

In 1998, Merrill Lynch paid Orange County, California $400 million to settle accusations that it
sold inappropriate and risky investments to former county treasurer Robert Citron.[72] Citron
lost $1.69 billion, which forced the county to file for bankruptcy in December 1994.[72] The
county sued a dozen or more securities companies, advisors and accountants, but Merrill
settled without admitting liability, paying $400 million of a total $600 million recovered by the
county.[73][74]

Analyst Research settlement

In 2002, Merrill Lynch agreed to pay out $100 million for publishing misleading research. As
part of the agreement with the New York attorney general and other state securities
regulators, Merrill Lynch agreed to increase research disclosure and work to decouple
research from investment banking.[75]

Misleading of investors by Henry Blodget

Between 1999 and 2001, during the dot-com bubble, Henry Blodget, a well-known analyst at
Merrill Lynch, gave assessments about stocks in private emails that conflicted with what he
publicly published via Merrill. In 2003, he was charged with civil securities fraud by the U.S.
Securities and Exchange Commission. He settled without admitting or denying the
allegations and was subsequently barred from the securities industry for life. He paid a $2
million fine and $2 million disgorgement.[76]

Enron/Merrill Lynch Nigerian barge

In 2004, convictions of Merrill executives marked the only instance in the Enron investigation
where the government criminally charged any officials from the banks and securities firms
that allegedly helped Enron execute its accounting scandals. The case revolved around a
1999 transaction involving Merrill, Enron and the sale of some electricity-producing barges
off the coast of Nigeria. The charges alleged that the 1999 sale of an interest in Nigerian
power barge by an Enron entity to Merrill Lynch was a sham that allowed Enron to illegally
book about $12 million in pretax profit, when in fact there was no real sale and no real profit.
Four former Merrill top executives and two former midlevel Enron officials faced conspiracy
and fraud charges. The Merrill Lynch executives were convicted, but, unusually, all three of
those that appealed subsequently had their charges overturned by the 5th U.S. Circuit Court
of Appeals in New Orleans who called the conspiracy and wire fraud charges "flawed."[77]
The Justice Department decided not to retry the case after the reversal of the verdict.[78][79]
Merrill reached its own settlement, firing bankers and agreeing to the outside oversight of its
structured-finance transactions. It also settled civil fraud charges brought by the U.S.
Securities and Exchange Commission, without admitting or denying fault.[80]

Discrimination charges

On June 26, 2007, the U.S. Equal Employment Opportunity Commission (EEOC) brought suit
against Merrill Lynch,[81] alleging the firm discriminated against Dr. Majid Borumand because
of his Iranian nationality and Islamic religion, with "reckless disregard" for his protected civil
rights.[82] The EEOC lawsuit maintained that violations by the company were intentional and
committed with malice. In another case concerning mistreatment of another Iranian
employee by Merrill Lynch, on July 20, 2007, a National Association of Securities Dealers
arbitration panel ordered the company to pay Fariborz Zojaji, a former Iranian employee,
$1.6 million for being fired due to his Persian ethnicity.[83][84] Merrill Lynch was criticized by
both the National Iranian American Council, and the American-Arab Anti-Discrimination
Committee.[85]

On August 13, 2008, a New Jersey appeals court rendered a ruling against Merrill Lynch in a
lawsuit filed by Darren Kwiatkowski, a gay employee who was called a “stupid fag” by
another employee.[86]

In August 2013, the company agreed to pay $160 million to settle a class action racism
lawsuit brought by a longtime U.S. employee in 2005. At the time the lawsuit was filed, 2% of
the brokers at the company were black, despite a 30-year-old consent decree it had signed
with the EEOC that required the company to increase its proportion of black brokers to 6.5%,
and despite the fact that in 25 states, the company did not have a single black broker. The
funds were available to all black brokers and trainees at the firm since May 2001, estimated
to be 700–1,200 people. During the case, Merrill's black CEO, Stanley O'Neal, said that black
brokers may have a harder time getting business for the company since most of its clients
were white.[87][88]

Market timing settlement

In March 2005, Merrill Lynch paid a $10 million civil penalty to settle allegations of improper
activities at the firm's Fort Lee, New Jersey office. Three financial advisors, and a fourth who
was involved to a lesser degree, placed 12,457 trades for Millennium Partners, a client, in at
least 521 mutual funds and 63 mutual fund sub-accounts of at least 40 variable annuities.
Millennium made profits in over half of the funds and fund sub-accounts. In those funds
where Millennium made profits, its gains totalled about $60 million. Merrill Lynch failed to
reasonably supervise these financial advisers, whose market timing siphoned short-term
profits out of mutual funds and harmed long-term investors.[89]

2008 bonus payments

In 2008, Merrill Lynch arranged for payment $3.6 billion in bonuses, one-third of the money
received from the Troubled Asset Relief Program, for performance that year in what
appeared to be "special timing," despite reported losses of $27 billion the same year.[90][91]

Mismarking

In 2010, a Merrill Lynch trader in London who mismarked positions he had on behalf of the
bank by $100 million to cover up his losses was banned by the United Kingdom's Financial
Services Authority (FSA) from working in the securities industry in the UK for at least five
years.[92][93][94][95]

Misleading customers about trading venues

On 19 June 2018, the U.S. Securities and Exchange Commission (SEC) charged Merrill
Lynch of misleading brokerage customers about trading venues between 2008 and 2013.
Merrill Lynch admitted wrongdoing and agreed to pay a $42 million penalty.[96][97]

Improper handling of ADRs

On 22 March 2019, Merrill Lynch agreed to pay more than $8 million to settle charges of
improper handling of pre-released American depositary receipts under investigation of the
U.S. Securities and Exchange Commission. Merrill Lynch neither admitted nor denied the
investigation findings but agreed to pay disgorgement of more than $4.4 million in ill-gotten
gains plus $724,000 in prejudgment interest and an additional penalty of $2.89 million.[98][99]

See also

Broker-dealer

Calibuso, et al. v. Bank of America Corp., et al.

Credit crunch

Liquidity crisis

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, a 2006 Supreme Court case involving
securities fraud claims.

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, a 2016 Supreme Court case
involving naked short selling claims.

List of UK judgments relating to excluded subject matter

Primary dealer

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Further reading

Farrell, Greg (2010). Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-
Collapse of Bank of America (https://archive.org/details/crashoftitansgre0000farr) . New York:
Crown Business. ISBN 978-0-307-71786-3.

McLean, Bethany; Nocera, Joe (2011). All the Devils Are Here All the Devils Are Here (https://archive.
org/details/alldevilsarehere00mcle) (Version_2 ed.). New York: Portfolio/Penguin. ISBN 978-
1591843634. OCLC 711801567 (https://www.worldcat.org/oclc/711801567) .

Merrill Lynch (March 3, 2008). "Merrill Lynch Names Thomas J. Sanzone as Chief Administrative
Officer" (http://www.businesswire.com/news/home/20080303005754/en/Merrill-Lynch-Names-Tho
mas-J.-Sanzone-Chief) (Press release). Business Wire.

Perkins, Edwin (1999). Wall Street to Main Street: Charles Merrill and Middle-Class Investors. New
York: Cambridge University Press. ISBN 978-0-521-63029-0.

Stiles, Paul (1998). Riding the Bull: My Year in the Madness at Merrill Lynch (https://archive.org/detail
s/ridingbullmyyear00stil) . New York: Times Business. ISBN 978-0-8129-2789-4.

Merrill Lynch

Official website (https://www.ml.com/)

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