THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties phần 8 pdf

to almost 31 million. Their average portfolio was less than $25,000

and they represented about 79 percent of NYSE turnover, falling to

65 percent as mutual funds became more popular in the 1970s.16

By the mid-1970s, Merrill Lynch had achieved the top spot on Wall

Street, a position it never relinquished. Capital exceeded $500 mil￾lion, several times that of second-place Salomon Brothers, and it

stood atop the league tables of underwriting for both lead manager

positions and participations. The firm had 250 offices, more than half

a million accounts, and 20,000 employees, far more in all three cate￾gories than anyone else on the Street. As a testimony to the popular￾ity and financial strength of retail brokers turned investment bankers,

the other top capital positions were occupied by Bache & Co., E. F.

Hutton, and Dean Witter.

The addition of Fenner & Beane years before helped Merrill

Lynch become prominent in the new derivatives markets that

appeared in the early and mid 1970s. Trading in listed options con￾tracts was introduced after the oil crisis in 1973, and trading in com￾modities futures contracts also increased markedly. The firm’s

expertise in this sort of contract trading helped it substantially when

stock market commissions began to decline with the poor market at

the same time. And it also provided something of a buffer when the

NYSE introduced negotiated commissions in 1975, putting further

pressure on traditional commission revenues, which previously had

been fixed.17 Donald Regan eventually spoke out in favor of the new

structure, recognizing the handwriting on the wall. The simple blue￾print that Charles Merrill established years before was well suited for

THE LAST PARTNERSHIPS

228

For years, Merrill Lynch was familiar to investors and television

viewers for two reasons. The first was the nickname “The Thunder￾ing Herd” and the second was the slogan “Merrill Lynch Is Bullish

on America.” The second showed stampeding bulls, an idea evoked

by the nickname. The original nickname had nothing to do with

bulls but was associated with the long name that the firm used after

1940, Merrill Lynch Pierce Fenner & Beane. Journalists gave the

firm the nickname because the name was the longest on Wall Street

at the time.

the expanding markets in the 1970s and beyond. And the basic maxim

about customers having trust in their broker also lived on. In an SEC

investigation of a broker in its San Francisco office suspected of

defrauding customers in the early 1980s, staff members turned up an

internal memo written by the manager of the Merrill Lynch office to

his immediate supervisor. In it he described the broker’s attitude

toward his customers once his clients had been fleeced of their

money. It read, “He is now saying—just get rid of the customer—he

no longer is of any value to Merrill Lynch—he has no more money!

Unconscionable behavior for a Merrill Lynch broker.”18 Clearly, Mer￾rill’s original business philosophy was still alive and well, if not being

always adhered to.

Merrill Lynch achieved its status by avoiding the limelight that the

traditional investment bankers sometimes found themselves in and

carved a niche out of a neglected but quickly growing demand for

brokerage services. A high-visibility brokerage office was added in

Grand Central Station in New York City during the 1960s so that

investors could check and trade their stocks on the way to work.

Almost fittingly, it was also a Merrill product that provided the great￾est challenge to banking regulators during the 1970s as the demand

for market-related instruments produced some serious cracks in the

banking structure. During the tenure of Donald Regan as Merrill

Lynch CEO, the lines of distinction that separated banking from bro￾kerage began to blur substantially. Traditionally, bankers offered sim￾ple banking services while brokers concentrated on stock market

accounts. But when interest rates began to rise in the 1970s, brokers

found that they could offer banking-related services that made regu￾lators furious. The public flocked to the services, leaving the banks

seriously weakened.

Merrill offered the cash management account (CMA) beginning in

1977. Investors left cash balances at their brokers that could be

invested or left to accrue interest at money market rates that were sub￾stantially higher than the rates of interest that banks offered. The banks

were limited by Federal Reserve regulations in the amount of interest

they could pay. While individuals were able to beat the bank rate of

interest, they could also write a limited number of checks against the

CMA, getting the best of both worlds in a sense. The concept caught on

Corner of Wall and Main: Merrill Lynch and E. F. Hutton

229

quickly at other brokers, many of whom scrambled to open similar

accounts for fear of losing customers to Merrill Lynch. Merrill scored a

major coup by introducing the account through its retail branch net￾work. The problems that it created with regulators were serious,

although Merrill was not a bank and could not be found in violation of

banking laws. But the account provided another chisel that would grad￾ually chip away at the somewhat privileged realm of commercial bank￾ing. Within several years time, brokers would be offering more banking

services and banks would try to reciprocate by offering brokerage ser￾vices. The CMA proved to be one of the early battles in the war between

bankers and brokers in the later 1980s and 1990s.

Rise of E. F. Hutton

Merrill was not the only successful retail broker of his era to survive

the Depression and rise to dominate retail brokerage. The traditional

path to Wall Street glory of the nineteenth century was now almost

impossible to plow, since the established investment banks were firmly

entrenched by the turn of the century. But brokerage was a field that

did not have any imposing barriers to entry, and it saw a wide array of

entrants after the panics in the earlier part of the twentieth century.

Many of these entrants were as successful as Merrill, although their

motives and business philosophies were markedly different.

One such entrant was the firm E. F. Hutton & Co. Founded by

Edward Hutton, a native New Yorker, in 1903, the firm opened for

business on April 1, 1904. Despite the commotion caused by the

short-lived Panic of 1903, Hutton went into business to capture small

investors’ accounts after having worked as a broker previously and

being a onetime member of the Consolidated Stock Exchange, a

small operation that specialized in trading odd-lot (smaller than 100)

share orders. He opened for business on the West Coast almost

immediately. The firm was still young when the 1906 San Francisco

earthquake hit, decimating the city and making brokerage by wire

impossible. Undaunted, the manager of the San Francisco office went

across the bay to Oakland to transmit orders to New York so that his

clients’ trading would not be interrupted. Dedication to clients made

Hutton a success very quickly.

THE LAST PARTNERSHIPS

230