MERRILL LYNCH RISE,FALL & SALE TO BANK OF AMERICA

References

1. International Directory of Company Histories , Vol 40, 2001

2. The Culprits of Orange County , 1995

3. www.wikipedia.com

4. www.youtube.com

5. How the Thundering Herd Faltered and Fell, www.nytimes.com , 2008

Merrill Lynch’s Rise – Fall & Sale to Bank of America

A Brief Overview

Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets.

Formerly known as Merrill Lynch & Co., prior to 2009 the firm was publicly owned and traded on the New York Stock Exchange under the ticker symbol MER.

Merrill agreed to a purchase by Bank of America on September 14, 2008, at the height of the 2008 Financial Crisis. It ceased to exist as a separate entity in January 2009.

Merrill Lynch – Inch by Inch

Who : Charles Edward Merrill & Edmund Calvert Lynch

What : Into Finance & Insurance , A subsidiary of Bank of America

When :1914 ,Incorporated in 1959

Where : Four World Financial Center ,New York City , USA

Now : Bank of America Towers

How : Lynch met Merrill while trying to find a place to live in New York in 1907. Lynch joined Merrill's firm in 1914

Total Assets : $ 407 Billion (2000)

Ticker Symbol : MER

Lynch met Merrill while trying to find a place to live in New York in 1907. Lynch joined Merrill's firm in 1914. In 1915, the company changed names from Charles E. Merrill Company to Merrill, Lynch and Company.

Charles Edward Merrill Edmund Calvert Lynch

The Founders

Rising 34 floors (500 ft), and situated between the Hudson River and the World Trade Center site, Four World Financial Center is located in the heart of the Financial District

Four World Financial Towers

Bank of America Tower at One Bryant Park is a 1,200 ft (366 m) skyscraper in the Midtown district of Manhattan in New York City, in the United States. It is located on Sixth Avenue, between 42nd and 43rd Streets

Bank of America Towers

Rise of Merrill Lynch – THUNDERING HERD

Also known as ‘Catholic Firm’ of Wall Street

The firm went public in 1971 and became 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 mutual fund, and included check-writing capabilities and a credit card

Merrill Lynch rose to prominence on the strength of its brokerage network (15,000+ as of 2006). Merrill Lynch was well known for its Global Private Client services and its strong sales force

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 slow investment pace. 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.

During the 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 populariser 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.”

The net income in 1967 was handsome $ 55 million ,representing an increase of 300 percent during the previous eight years. This included Merrill Lynch's first determined entry into the mutual fund markets; and the purchase of Royal Securities Corporation of Canada, significantly strengthened Merrill Lynch's position.

In 1971 member of the New York Stock Exchange to invite public ownership of its shares. During the telecast of the World Series that year, Merrill Lynch introduced its famous slogan, "Merrill Lynch is bullish on America.“

1977 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.

ML 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.

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.

In the late 1990s online investing revolution, in 1997 introduced Merrill Lynch Online. ML came 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.

Downfall of Merrill Lynch – RICHES TO RAGS

2000 and into 2001--highlighted of course by the spectacular bursting of the Internet stock bubble--Merrill Lynch began trimming expenses. Non core 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.

Secluded office of Merrill Lynch , NYC

Major causes for the decline of Merrill Lynch

Collateralized Debt Obligations (CDO): These instruments repackaged a pool of bonds, derivatives, and other instruments such as corporate bonds. The CDO derived its value from converting illiquid assets, such as buildings, into liquid financial instruments. A mortgage CDO bundled thousands of individual mortgages into a single bond, which was supposed to diversify default risk.

Mortgage-backed Securities (MBS): These are a subset of CDOs. They were bundles of mortgages that were sold to Fannie Mae, which repackaged them to sell as stock to individual investors. This process enabled banks to take mortgages off their balance sheets.

Credit Default Swaps (CDS): These were an insurance policy against the risk of investors, who bought them like bonds. A premium was paid to underwrite the risk of the various instruments like CDOs. CDSs lowered the cost of taking risks and created confidence in investors.

The Orange County Issue

Orange County was at the time the largest American county to have gone bankrupt, when in 1994, treasurer Robert Citron's investment strategies left the county with inadequate capital to allow for any rise in interest rates for its trading positions. When the residents of Orange County voted down a proposal to raise taxes in order to balance the budget, bankruptcy followed soon after. Citron later pleaded guilty to six falcies regarding the matter.

Merrill Lynch settled with Orange County, California, for a massive $400 million to settle accusations that it sold inappropriate and risky investments to former county treasurer Robert Citron. Citron lost $1.69 billion, which forced the county to file for bankruptcy in December 1994. The county sued a dozen or more securities companies, advisors and accountants, but Merrill settled without admitting liability in June 1998. The county was able to recover about $600 million in total, including the $400 million from Merrill.

Sub Prime Lending

In 2001, interest rates in the U.S. fell to low levels for several reasons. The environment of “cheap credit” encouraged investors and financial institutions to speculate in the real estate market, which increased property value and enticed household consumers to take additional debt. The Federal Reserve began to raise the interest rate incrementally in late 2004.

By 2006, the subprime mortgage market began to appear vulnerable because of the increased interest rate. Holders of adjustable rate mortgages were required to make higher monthly payments than many could meet. The entire mortgage finance system, which was based on the assumption of ever-rising property value, began to unravel. Many rushed to sell their houses, which created further downward pressure on housing prices. This created a series of financial failures as CDOs dropped in value and banks lost their capital in defaults and withdrawals

In late 2007, when Merrill Lynch was forced to admit its liabilities of $7.9 billion and write off $9 billion in holdings, O’Neal was forced to resign, and John Thain took over as CEO. O’Neal was still allowed to retain his $30 million in retirement benefits and $129 million in stocks and options.

John Thain also failed to understand the extent of Merrill Lynch’s financial condition, which he later acknowledged. But with further losses of $10 billion in CDOs in 2008, the bank was in serious trouble. With the support of the New York Federal Reserve Bank, Thain approached Bank of America CEO Ken Lewis to sell the company.

Ultimate Collapse of Merrill Lynch – THE DOOM’S DAY

Downfall of Merrill Lynch and its Share Price

David Komansky

Stanley O ‘ Neil

John Thain

Office Bearers at Merrill Lynch

Kevin Lewis , CEO BofA

Sale to Bank of America

Sale to Bank of America : BYE BYE MERRILL LYNCH

Why???

•Significant losses were attributed to the drop in value of its large and unhedged mortgage portfolio in the form of collateralized debt

•loss of confidence in Merrill Lynch's solvency.•inability to refinance short term debt.

When??

On Sunday, September 14, 2008,Bank of America announced.

How??

Thain sold Merrill Lynch for $50 billion, at $29 per share. The investment firm had more than $1.02 trillion in assets and more than 60,000 employees worldwide. Bank of America became more universal once it acquired Merrill Lynch.

The primary concern for Bank of America was the actual worth of Merrill Lynch in 2008, when the market environment fluctuated rapidly.

Why Bank of America was interested?

Lewis wanted to buy the company because of Merrill Lynch’s strongest unit, its 16,000 investment advisors, which would fill a hole in Bank of America’s product offering.

The entire transaction took place in the panic when Lehman Brothers was about to declare bankruptcy.

T h a n k y o u !