Merrill Lynch & Company Inc.topics.nytimes.com | Feb 27th 2012
Updated Sept. 15, 2009
Merrill Lynch was founded in 1914 and heralded the idea that everyone, not just the rich, should invest in the financial markets. That stance made Merrill not only one of the pillars of Wall Street, but a reputation as the stockbroker for Main Street as well. It survived wars and the Great Depression, but succumbed as an independent company to the mortgage meltdown that began in mid-2007. On Sept. 14, 2008, Merrill announced that it had agreed to be purchased by Bank of America, rather than run the risk of being pulled under by turmoil surrounding the industry, as Bear Stearns and Lehman Brothers had been.
Merrill's logo -- a bull -- had long symbolized the fundamental optimism of Wall Street, and its leaders had often been viewed as spokesman for the entire industry.
In recent years, Merrill had grown to be really two companies. One was a thriving wealth-management company with $1.4 trillion of assets managed by 16,000 brokers plus a 49 percent interest in BlackRock, a fast-growing asset management operation.
The other part was a fixed-income or bond-trading operation that invested heavily in relatively high-risk, high-return securities backed by subprime home mortgages. These securities lost value as housing prices fell and the number of foreclosures grew. In late October 2007, the company posted a write-down of $8.4 billion to recognize the decline in value of these securities.
Shortly thereafter, E. Stanley O'Neal was removed as chief executive as a result of the losses and an unauthorized merger proposal. On Nov. 14, John A. Thain, the chief executive of the New York Stock Exchange and a former president of Goldman Sachs, was named as Mr. O'Neal's successor.
Mr. Thain moved quickly to push more of the worst investment out the door, writing off billions while moving to raise more capital. In July 2008 he sold $31 billion of securities for pennies on the dollar, asserting that Merrill needed to get the housing crisis behind it.
Mr. Thain's actions were the most drastic of any of the chiefs of the major Wall Street banks, and as late as Sept. 10 he reassured worried employees that the firm's capital levels were sound. But as Lehman Brothers started to swirl downward toward bankruptcy -- a prospect that held the risk of pulling other firms down with it -- Mr. Thain became convinced that a far more drastic action was needed.
When Treasury Secretary Henry M. Paulson Jr. called top bankers together on Friday, Sept. 12, for weekend-long talks on saving Lehman, Mr. Thain began discussions with the chief of Bank of America, Kenneth D. Lewis. By Sunday, they were ready with an announcement that rattled some on Wall Street even more than the news of Lehman's bankruptcy: the end of Merrill as an independent firm.
Bank of America offered $50.3 billion in stock, or $29 a share, for the 94-year-old company. The merger combined Bank of America's banking and lending strength with Merrill Lynch's wealth-management expertise. Mr. Lewis called Merrill's 17,000 financial advisers "the crown jewel of the company."
Bank of America's shareholders signed off on the acquisition in early December, only to discover that gaping losses at Merrill would force the bank to seek assistance from the government for a second time, getting an emergency infusion of $20 billion in capital. Some investors sued, claiming that Mr. Lewis failed to fully disclose the risks of the deal.
In April 2009, as the deal continued to draw heavy criticism, shareholders voted to strip Mr. Lewis of his title as chairman. For his part, Mr. Lewis told a Congressional panel that he had considered pulling out of the Merrill deal but that regulators had pressured him to complete it.
Meanwhile, $3.6 billion in bonuses were paid in late 2008 to some of those Merrill employees just before the merger was completed. Shareholders and taxpayers were outraged when they learned of the bonus payments since Bank of America was the recipient of so much federal bailout money.
The Securities and Exchange Commission filed suit and Bank of America agreed on Aug. 3, 2009 to pay $33 million to settle claims, without admitting or denying the accusations, that it had misled its shareholders about the bonuses.
On Aug. 10, the judge in the case, Jed S. Rakoff, refused to approve the deal, questioning whether the $33 million agreement was adequate. He said too many questions remained unanswered, including who knew what and when about the controversial payouts.
On Sept. 14, Judge Rakoff overturned the settlement. His ruling directed both the S.E.C. and the bank to prepare for a possible trial that would begin no later than Feb. 1, 2010. He wrote that the settlement "does not comport with the most elementary notions of justice and morality."
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