One of the most recognizable financial names recently reached the century mark. Merrill Lynch, the firm that democratized finance for the middle class, turned 100 on January 6. It rose from humble beginnings to become a financial giant, only to be rescued from failure by Bank of America.
The story of the firm that “brought Wall Street to Main Street” began in 1914 when Charles Merrill established Charles Merrill and Company – with no assets and no clients. The firm consisted of Merrill and Edmund Lynch, and the name changed to Merrill Lynch in 1915.
The company grew rapidly and made several highly successful investments. The most successful came in 1926 with the purchase of controlling interest in Safeway Stores, which shortly became the largest grocery chain in the nation.
Significant change took place in the 1930s and 1940s. Merrill merged with E. A. Pierce and Cassatt and Company. Later, the combined company merged with Fenner and Beane, an investment bank and commodities company. The new entity became Merrill Lynch, Pierce, Fenner, and Beane.
In 1958, the name changed to Merrill Lynch, Pierce, Fenner, and Smith. By now, it had become the largest securities firm in the world.
Merrill Lynch rose to prominence on the strength of its extensive brokerage network that brought investment opportunities to millions.Name and reputation were paramount in its growth.
Subtle changes surfaced in the 1990s. They started with the collapse of Orange County, California. Accusations that Merrill Lynch sold inappropriate and risky investments to Orange County led to a then-massive $400 million settlement.
The financial collapse hammered the last nails in the company’s coffin. Prior to the collapse, it added billions of dollars of mortgages to its balance sheet and purchased a subprime lender, First Franklin Financial.
Unfortunately, the company was in a business in which it had little expertise. In November 2007, it announced a write-down of $8.4 billion in losses associated with the national housing crisis.
Conditions worsened. For the year ended June 30, 2008, Merrill Lynch lost $19.2 billion or $52 million per day. And on September 15, 2008, it agreed to be purchased by Bank of America for the fire-sale price of $20 per share, marking the end of a storied era.
Wayne Curtis, Ph.D., is a former superintendent of Alabama banks and Troy University business school dean. He is retired from the board of directors of First United Security Bank. Email him at wccurtis39@gmail.com.
