Sunday, September 9, 2007

Merrill Lynch - Strategy and Growth


When the SEC deregulated fixed brokerage commissions on May 1, 1975, traditional brokerage firms like Merrill Lynch raised trading fees for individual investors while Schwab lowered its commissions by more than 50 percent. Appealing to the middle-class avalanche, now beginning to move en masse, Schwab was also one of the first brokerage companies to force the mutual funds—and not the clients—to pick up trading fees and the first discounter to create a branch network.
The avalanche rolled, a new investor class was born, and Charles Schwab became one of the most successful discount brokerage firms in the industry—by appealing to the middle class with pragmatic financial advice and using a nonjargon straight talk style.



2. Merrill Lynch Spouts the On-Line Gospel

The digital version of Merrill Lynch wants to sell not just stocks and bonds, but steaks and bonbons, too.

In recent weeks, Merrill has added on-line shopping and auctions to its portfolio of World Wide Web sites and the firm's executives have started using cyberspeak to describe a grand plan that sounds more at home at than Charles Schwab, the leading on-line brokerage firm. Merrill Lynch wants to manage ''the total financial relationship'' with its customers, not just their investments, said John L. Steffens, a vice chairman who heads Merrill's brokerage business.

If Mr. Steffens has his way, Merrill's clients will band together and use their enormous buying power to extract the best prices from hundreds of on-line merchants for everything from champagne to diamond rings to office supplies. They will pay for all those purchases with their Merrill Lynch Visa debit cards and receive rebates in the form of points they can apply toward other purchases, air travel or for discounts on brokerage services.

''We began to think of our clients as a community and this is their community membership card,'' Mr. Steffens said, slipping his own Signature Visa card out of his wallet and flashing it.

Merrill account holders will buy about $7 billion in goods and services with their Merrill Visa cards this year, Mr. Steffens said, adding that he believes that on-line sales could help raise that total to $100 billion annually within six years.
All this E-commerce talk comes less than two months before Merrill is scheduled to begin its long-anticipated leap into low-cost on-line trading, a risky move down-market that has created friction within the ranks of its 14,800 brokers and worries among the firm's shareholders. Many fear that Merrill will cannibalize its existing business by offering trades for just $29.95, the same rate Schwab charges.

Indeed, when Merrill announced its on-line initiatives June 1, its stock price dropped more than 10 percent, from $84 to $75.25, and has not recovered since. Merrill shares closed yesterday at $70.

Preparing for a Dec. 1 kickoff, Merrill has teams of technology specialists at two sites in central New Jersey and another in Cambridge, Mass., tuning up and testing the on-line trading service, Merrill Lynch Direct.

The new service will allow Merrill customers to set up on-line accounts, log in and trade stocks, bonds, mutual funds and, eventually, more exotic securities like stock options. In the current model, one screen has a column of buttons that users click for up-to-date summaries of all their accounts or to search across them for holdings of a particular stock.

Add up all these changes and you get a big, blurry picture of what customers will get from Merrill in the future, observers say.

''Is Merrill trying to become an electronic-commerce company or are they still a financial-services conglomerate with a hefty focus on brokerage?'' asked Henry McVey, an analyst at Morgan Stanley, Dean Witter & Company. ''That's unclear. To date, what we've seen is more of a shotgun approach to the Internet, including free research, E-shopping and on-line trading.''

Mr. Steffens, who is 57, replies that ''I didn't have a change of heart'' about incorporating new technology into Merrill's brokerage operation.

That view was consistent with Merrill's frequent pronouncements that individual investors should stick to a disciplined investment strategy and not get caught up in the day-to-day market frenzy. But it was regarded as evidence that traditional brokerage firms were blind to the changing needs of investors, who have clearly embraced on-line trading.

Now, Merrill is engaged in a difficult balancing act: The firm wants to be able to claim it offers everything an active trader needs -- while generally discouraging active trading.

What Merrill wants from its customers is clear: more of their assets. The firm holds about $1.5 trillion of assets belonging to about five million clients. The assets at Merrill have grown more than 15 percent annually this decade, Mr. McVey said, but that growth rate pales when compared with Schwab's pace of almost 40 percent a year. Schwab, based in San Francisco, has been taking in more than $25 billion of new money from customers every three months and losing a lot less to traditional brokers than Merrill had once predicted.

''There certainly has been some graduation process,'' said Guy Moszkowski, an analyst at Salomon Smith Barney. ''But Schwab wants to hang onto those people. Now, Merrill's saying, 'We've got to have them in-house earlier.' ''

The typical Merrill customer has been getting younger and wealthier, just not fast enough for the firm's taste. Many baby boomers are comfortable enough with technology and distrustful enough of stockbrokers' motives to go it alone, or with only the occasional help from firms that do not have armies of commission-hungry brokers.

Merrill is introducing a raft of new services to attract those investors.
Easily the most important of those changes -- despite all the attention Merrill's decision to offer on-line trading has attracted -- is the current push to convert most clients to a fee-based account Merrill calls Unlimited Advantage.

These account holders -- for a pre-set cut of their assets starting at $1,500 a year -- can have access to all of Merrill's on-line services, including research by the firm's own analysts and, soon, from the Standard & Poor's Corporation. Those customers will also be able to make as many trades as they want, either electronically or through a broker.

Still, other aspects of Merrill's new strategy -- like the use of technology to expand the firm's base of institutional clients and a shift away from a reliance on commissions -- are more critical to its ability to compete as an independent firm amid a consolidating industry. Indeed, compared with those changes, one person close to Merrill's top management said, the impending rollout of on-line trading ''is the biggest nonevent around.''

More than anything else Merrill is trying, the switch to fee-based accounts heralds a transformation in the relationship between the firm's brokers and their clients. For years, Merrill has pushed its brokers to shift more customers from paying commissions for every transaction to paying an annual fee based on a small percentage of total assets. Many brokers balked because they felt they had more control of their own earnings in a commission-based system. Less than 10 percent of Merrill clients' assets are in fee-based accounts.

What were once mere encouragements are now turning into dire warnings. Merrill executives routinely refer to the impending extinction of brokers who do not adopt the new approach. They laud Unlimited Advantage for aligning the brokers' interests with those of their clients, and for removing much of a broker's incentive to induce clients to make excessive and unwanted trades, a practice known as churning.
''There are a lot of clients who will actually look at this account as favorable because it minimizes the potential for churning,'' Mr. Moszkowski, the Salomon Smith Barney analyst, said.

But it also takes away some motivation for brokers to interact with clients. Once a client's assets are in-house and producing a fee, the broker's attention naturally will turn to gathering more from someone else.

Mr. Moszkowski predicted that many Merrill customers, contrary to brokers' fears, will end up paying more in fees than they previously paid in commissions.
That is already happening, according to Mr. Steffens. On average, Merrill now keeps about 77 cents of every $100 invested at the firm. But 55 percent of the new accounts, he said, are producing a higher return for Merrill than that.

The new accounts are an opportunity for Merrill to reverse a slide in the amount it makes on its accounts, Mr. Steffens said.

To illustrate the firm's predicament, Mr. Steffens drew a large X on a napkin. The downward sloping line represented the decline of Merrill's cut of the assets from 1.5 percent in 1985 -- or $1.50 of every $100. The other line depicted the rapid growth in assets from $188 billion in 1985 to its current $1.5 trillion.
''We have been in a price decline for years,'' he said.

Brokers concerned about the firm's latest price cut, Mr. Steffens contended, should focus instead on helping Merrill continue to make it up on volume.

One longtime Merrill broker said he was resigned to earning 30 percent less from clients with more than $1 million in their accounts. To make up the difference, he said, he would have to spend more time prospecting for new clients and less time cultivating existing ones.

Some brokers are not so accepting, though. Merrill acknowledges that the changes have driven some brokers to join competing firms. And others are complaining about what they think is a too-aggressive swing the firm has made to compete with cut-rate competitors. But Merrill says it still is attracting more seasoned and productive brokers than it is losing.

One of the twists to Merrill's new approach is that it goes much farther afield than Schwab has -- particularly in its embrace of E-commerce.

Long seen as an innovator among leading brokerage firms, Schwab has no plan to branch out into electronic commerce beyond its core financial-services businesses, said Daniel Leemon, a vice president who maps strategy for Schwab.

''What customers on the Web don't need these days is to be inundated with offers,'' Mr. Leemon said. ''We think that begins to dilute what the brand means to people. I don't think anyone wants to come to Schwab for an auction of their Beanie Babies.''
But Merrill executives are resolute about the important role the firm can play in helping customers -- including about 450,000 small businesses -- manage their daily finances. Customers care as much about saving money on their regular purchases as earning money on their investments, said Randal Langdon, who oversees Merrill's E-commerce operations.

Mr. Langdon, once a top Merrill broker, beamed like a new father as he demonstrated how Merrill's new shopping Web site could track down a copy of a Harry Potter children's book for just $2.99. ''That's $20 retail,'' he said.
Merrill is already arranging discounts for business owners on office supplies, and helping them auction excess inventory over the Internet. Mr. Steffens said Merrill will consider brokering group purchases of other things business owners need, like insurance.

''What we're trying to do is basically build more complete banking capabilities, so they keep bigger balances with us,'' Mr. Steffens said. ''This is not about selling books and airline tickets; it's about building relationships.''


3. the world's largest traditional investment firm (ML) and the largest discount broker (Charles Schawb) are going head-to-head in a rip- roaring slugfest.

The battle was joined about a month ago, when Merrill invaded the Internet brokerage space Schwab has dominated the past three years. In a pointed message, it set commissions for Merrill Lynch Direct, its new online investing service, at $29.95 per trade, is exactly what Schwab charges.
That marked Merrill's second in-your- face challenge to Schwab in 1999. Earlier in the year, the firm unveiled its ``Unlimited Advantage'' account offering virtually unlimited trading in exchange for an annual fee of up to 1 percent of assets. The product competes directly with a key Schwab program in which clients who want investment advice are steered to independent financial advisers, while keeping their accounts with the firm.
Of course, there are plenty of other powers in the investment business, including mutual fund and discount brokerage giant Fidelity Investments, which has caught up with Schwab in numbers of Internet accounts; newly aroused traditional firms, such as Morgan Stanley Dean Witter; and Web-based brokerages, such as E-Trade. But Schwab and Merrill are the industry's strongest competitors, and the winner of their showdown is likely to rule the investment world for years to come.

``We needed to make sure we could reach the next generation of investors,'' said Merrill spokeswoman Susan Thomson.
Meanwhile, to meet the stepped- up competition from the Merrills of the world and beat back feisty online rivals, Schwab has begun to offer an array of services that look a lot like those offered by old-line stockbrokers, including specific investment recommendations.
What's more, the firm will soon start charging a fee for some forms of investment advice, a huge turnabout for a company that has never asked customers to pay to speak with its representatives.
``We are going to become much more aggressive in the advice-giving arena,'' said co-chief executive David Pottruck. ``We have not begun to initiate the substantial enhancements we plan to introduce.''
The brokerage brawl comes as Schwab is posting record profits, fueled by a surge in new accounts and record customer trading activity.
Last week, Schwab said it expected to report income of $580 million to $589 million for 1999, well ahead of Wall Street estimates, and up sharply from the $348 million earned in 1998. Customer assets recently zoomed past the $700 billion mark, up 43 percent from the end of 1998.
By contrast, Merrill's client assets rose a scant 7 percent in the first nine months of 1999. And its stock trades at only about 16 times annual earnings, compared with a whopping 60 times earnings for Schwab.

Competition between ML and Schwab

. Ever since a 38-year-old stockbroker from Sacramento named Charles Schwab founded his discount brokerage in 1974, the company has been gunning for the industry leader.
As he built his business, Schwab regularly cited Merrill as an example of everything he thought was wrong with traditional brokerages, a world he claimed was filled with greedy brokers racking up commissions and pushing their companies' favorite products.
In recent years, Schwab people have taken to calling firms such as Merrill ``full-commission brokers,'' even though their own company charges some of the highest trading fees in the discount brokerage business.
Schwab's trash talk isn't letting up, either. In November, Schwab chief strategy officer Daniel Leemon blasted Merrill's Unlimited Advantage program in a speech to financial planners. The new account is a rip-off that would actually raise costs for about 95 percent of clients, he insisted.
Merrill's lawyers fired off an indignant letter disputing Leemon's claims.
For years, Merrill disdained Schwab as an ill-mannered parvenu in the tony investment business. But as ever-larger numbers of investors opted for Internet brokerage and other low-cost alternatives, Wall Street's biggest firm decided to fight back.
When Merrill responded, it did so in a way that left no doubt what its target was. In a print ad promoting its Unlimited Advantage program, Merrill mocked Charles Schwab by lifting a quotation from his book which suggested that anybody could be taught how to invest over a long lunch.

Stregths and Weaknesses

Merrill has a strong sales organization and a great record of coming up with new products. It was the company that invented the cash management account a generation ago, combining brokerage and banking services in a single product.
And, as a full-service investment bank doing business with corporate clients, Merrill can give brokerage customers an inside track on the stock and bond offerings it underwrites. In addition, it has more than 400 analysts on staff producing the kinds of reports investors crave.
But Merrill faces an enormous challenge remaking its corporate culture. Stockbrokers making hundreds of thousands of dollars or more annually may be reluctant to steer clients to cheap Internet stock trading. And it is saddled with the huge overhead of a traditional Wall Street firm.
Internet trading ``directly threatens Merrill's broker culture and they have to lower their cost structure,'' said Goldman Sachs analyst Richard Strauss. ``But do I think they will get their act together ultimately? Yes.''
For its part, Schwab has proved that it is in tune with the aspirations of the fastest-growing segment of the market -- newly affluent, middle-aged investors who want a high degree of control over the finances.

While Merrill leads among older, richer investors, Schwab's strength is with a younger group rapidly moving toward wealth. ``We are a Baby Boomer company riding the demographic wave,'' said Leemon in an interview.

Still, Schwab can't be complacent. ``They have some issues,'' noted Chase H&Q analyst Smith.
For one thing, moves to offer more advice could raise Schwab's costs and step on the toes of some of the 5,600 independent financial advisers with whom the firm works. Those advisers manage about a third of Schwab's customer assets.
Schwab provides stock research and access to public offerings mainly through alliances with outside investment banks. Some analysts believe Schwab needs to perform these functions itself.
Most dangerous of all, Schwab may be operating based on a false image of its competition.

There are still some stockbrokers who fleece their clients, just like the cigar-chomping, feet-on-the-desk villains of Schwab lore. In reality, Merrill has been moving toward a more customer-friendly way of doing business for a long time. For example, the firm now puts more client money into outside mutual funds than its own proprietary funds.

``They are perpetuating a stereotype of our financial consultants a la the 1970s,'' said Merrill's Thomson.

Analysts say Schwab must be given credit for reshaping the industry.
The battle is being fought on Schwab's turf.The Schwab model is becoming the model for the entire brokerage business.

4. Merrill Lynch's Global Retail Strategy Is Broker-Less

Merrill Lynch's Internet-based joint venture with HSBC Holdings plc of London, announced in April, won't involve brokers.

Given the working name of Merrill Lynch HSBC, the 50-50 joint venture is targeting investors with 100,000 dollars to 500,000 dollars in assets who want to bank and trade online.

"We'll augment our clicks with bricks--that is, physical offices in selected locations," Merrill Lynch Chairman and CEO David Komansky told reporters at a press conference. "And we'll back up our service with around-the-clock call centers doing business in the client's language of choice."

Merrill Lynch HSBC will be completely separate from Merrill's U.S. discount operation, Merrill Lynch Direct.

"Both of us [Merrill and HSBC] have such significant presence in the United States that the conflicts would have been very, very difficult to manage," Komansky said. "So Merrill Lynch Direct will function here in the U.S. ... and outside the U.S., this joint venture will be our virtual channel."

Win Smith, chairman of Merrill Lynch International, said the new firm would offer some type of referral opportunity for full-service advisers. Both partners will have "an opportunity to compete for the client base as [customers] grow in wealth and have more sophisticated needs," he said.

The joint venture will start later this year in the U.K., and then be rolled out to France, Germany, Japan, Canada and Australia. It will eventually be offered in 21 countries.

Komansky predicted the new firm would break even in four to five years and be profitable after that. "In Europe alone, we expect that online banking and investment accounts will grow at a compound annual rate of more than 60 percent , to more than 14 million accounts by the year 2004," he said.

Roberta Arena, group general manager for global e-business at HSBC, said increased equity investments by non-U.S. investors will drive growth. American investors have more than 40 percent of their assets in stocks, she said, but in the U.K. the number is around 20 percent and in continental Europe it's in the "low teens." Japan could be the greatest opportunity because only 8 percent of individuals' net worth is invested in equities, Arena said.


5. Merrill Lynch to sell Canadian retail brokerage division

A Merrill Lynch representative said that the company's Canadian retail brokerage operation doesn't fit with its new focus on private client wealth management.
"The decision was made that it (the Canadian retail brokerage operation) is not going to be part of its global strategy," said Merrill Lynch Canada spokesperson Peter Kahnert.
The brokerage told its 1,000 Canadian brokers on Tuesday in an internal announcement that it is considering selling the business.

The business could be sold to a Canadian rival or be purchased in a management buyout.

The company is choosing to focus on high net-worth individuals, usually defined as people worth $1 million or more. Merrill's Canadian arm won't be the only one affected. The company is also reported to be selling operations in Japan and Europe, while concentrating on its most profitable businesses – U.S. stockbrokers and global investment banking and money management.

After selling its retail stock brokerage, Merrill Lynch would still keep a Canadian presence, serving corporations and institutional investors. That business employs about 500 people.

Merrill Lynch acquired its Canadian brokerage presence after buying Midland Walwyn for $1.3 billion in 1998


6. Executive Changes in ML

In quick succession, just days after E. Stanley O'Neal took over as chief executive of Merrill Lynch on Dec. 2, 2002, the firm announced several executive changes. G. Kelly Martin, a member of Merrill's executive committee, stepped down as president of the international private client business to pursue other interests. Michael J. P. Marks, the chairman of its European, Middle East and African operations, retired. Paul D. Roy, the co-president of its global markets and investment banking business, said that he, too, would leave the firm.

Absorbing their portfolios were James P. Gorman, president of Merrill's brokerage network in the United States and a former McKinsey & Company executive who joined the firm in 1999, and Arshad R. Zakaria, Mr. Roy's co-president, who at 40 is now the youngest head of any big banking and securities division on Wall Street, the unit responsible for 60 percent of Merrill's profits.

At Merrill, the bloodletting has actually been going on since Mr. O'Neal became president in July 2001, starting with the resignations, under pressure, of Jeffrey R. Peek, the head of asset management, and Thomas W. Davis, who had run the firm's investment banking business.

More important, it signals a cultural and management revolution unique in the firm's history. In contrast with its peers on the Street, Merrill, under Mr. O'Neal's iron grip, is ruled by the cold, hard view that the current malaise of the markets will not dissolve anytime soon.

Mr. O'Neal's Merrill, it seems, is no longer bullish on America.
Over the last two years, Mr. O'Neal's crew, which also includes Thomas H. Patrick, the executive vice chairman, has presided over the loss of 18,600 jobs at Merrill, or 25.8 percent of the work force. No other investment firm has come close to cutting so deeply.

Merrill's new management team is viewed by insiders and outsiders alike as extraordinarily numbers-oriented -- realists, to supporters; cynics, to detractors.

Mr. Zakaria's ascent, in particular, has raised eyebrows on Wall Street. He is ''a quant,'' expert at putting together complicated financial instruments, but lacking in experience in relationship banking, which generally demands more advanced people skills, investment bankers who have worked with him say.

That Mr. Zakaria is talented, there is no doubt. What matters more to Mr. O'Neal, however, is loyalty, which all in the new guard at Merrill have in spades.
The revolution will be complete in April, when David H. Komansky, the former chief executive and current chairman, departs. Mr. Komansky, with his back-slapping bonhomie, born of his years as a top-producing broker, is already a faded symbol of a global expansion strategy that resulted in the corporate bloat that Mr. O'Neal is working so hard to pare.

Inside Merrill, several employees said, morale is grim. One former employee likened the environment in the investment banking ranks to Afghanistan under the Taliban. Bankers who have left Merrill in recent years express amazement that the banking and securities business -- home to high-profile areas like mergers and acquisitions and equity underwriting -- is being run by Mr. Zakaria. He may be recognized within the firm as a tax expert and may well have made a large number of client calls last year, but he is no relationship banker, they say.

Mr. O'Neal and company -- all of whom declined to be interviewed for this article -- do have supporters who believe that they are the right managers at the right time.
''These guys are workers,'' said Stephen L. Hammerman, a former Merrill vice chairman who retired from the company last February. ''They are rolling their sleeves up and are here to do a job. They know how to deal with clients and they know how to deal with money.''

TO impose his view, Mr. O'Neal has brought in a group of people that contrasts sharply with past management teams.

Mr. Gorman, 44, is from Melbourne, Australia. Mr. Zakaria hails from Bombay. The new chief financial officer, Ahmass L. Fakahany, also 44, is from Cairo. Sergio Ermotti, 42, co-head of global equity markets, is from Lugano, Switzerland. Dow Kim, 40, the firm's head of global debt, is a native of Seoul, South Korea.

Robert C. Doll Jr., a 48-year-old American from Philadelphia, now heads asset management.

Merrill's top managers are among the youngest executives on the Street. None have been with Merrill Lynch for more than 20 years, and none have risen from within the firm's vast private client group -- Merrill's usual source for top managers. For all of them, starting with Mr. O'Neal, the idea of Mother Merrill as a nurturing bureaucratic womb is dead, according to top bankers at the firm. Mr. Zakaria is the prime example of that. His startling ascent through the Merrill management ranks and his instinctive understanding of some of the most esoteric, profitable and controversial financial products that Wall Street has to offer, combined with his uncanny ability to navigate the firm's byzantine political ways, symbolizes the new Merrill manager in many ways.

Throughout his 15-year career at Merrill, Mr. Zakaria has had a hand in devising and selling some of the most lucrative financial products ever to come out of Merrill Lynch. These range from off-balance-sheet tax-shelter partnerships in the late 1980's to a variety of equity-linked instruments in the mid-1990's that allowed Merrill's corporate and individual clients to raise billions in cash while escaping hundreds of millions in taxes.

The son of an upper-class family in Bombay (his brother Fareed is a columnist and the editor of Newsweek International), Mr. Zakaria has always been at the top of his class. At Harvard, he graduated summa cum laude with a degree in applied mathematics and won an $8,000 prize from Morgan Stanley for a paper he wrote on pricing call options.

In 1985, he made the unusual jump directly to the Harvard Business School -- and he breezed through it, winning a Baker scholarship and a Loeb Rhoades finance fellowship.

After earning his M.B.A. in 1987, and after a vigorous bidding war for him among all the big investment banks, he signed on with Merrill Lynch for $150,000 a year, an extremely high salary for a business-school graduate with no full-time banking experience.

Mr. Zakaria skipped through the training program and went directly to work for E. S. Purandar Das, a managing director and fellow Indian who was involved in an effort to create tax-shelter partnerships and sell them to Fortune 500 companies looking to avoid capital gains taxes. Mr. Das, a former chemical engineer with a deep understanding of the United States tax code, had less expertise in creating financial products -- where Mr. Zakaria was useful.

At the time, according to court documents cited in news accounts, several big Merrill Lynch clients, like Schering-Plough, AlliedSignal and Colgate-Palmolive, were eager to lower the taxes they were paying on subsidiary sales. Mr. Zakaria worked on a team with Mr. Das that solved the problem with a plan to set up an offshore fund with a foreign partner for each client. Within the fund, securities would be bought and sold, generating an eventual loss that could be carried forward to offset the company's capital gain.

It was a brilliant piece of financial craftsmanship. One of the first purchasers was Robert P. Luciano, then the chief executive of Schering-Plough and a Merrill board member, a position he still holds. The fees for Merrill ran as high as $15 million a client.

By 1990, Mr. Zakaria was a full-fledged star. As the recession's teeth sank deeply into the firm, Mr. Zakaria, Mr. Das and Mr. Luciano's son, Richard, who had joined their team, flew around the country in a Gulfstream jet, pitching their partnerships to eager corporate clients, the court papers show.

That year, say a number of former Merrill bankers who declined to be identified, that small group pulled in more than $100 million in revenue. The combined cut for Mr. Das and Mr. Zakaria was around 20 percent, these people say. Their rewards were so large that Barry S. Friedberg, the head of investment banking at the time and a member of the compensation committee, made a private deal with his two banking stars to prevent the spread of jealousy. Mr. Friedberg, who is leaving the company, did not return phone calls seeking comment.

Nevertheless, word spread: Mr. Zakaria, then 27 and just three years out of business school, was pulling down nearly $5 million, making him one of the highest-paid bankers not only at Merrill but also on Wall Street.

In the end, though, the partnerships were too good to be true. By 1995, the Internal Revenue Service had begun to close them down as part of a drive to close tax loopholes. Mr. Das, his career already on the wane, was forced to testify in court on the nature of the partnerships and went on to identify the clients involved. Mr. Das, who later left the company, refused to comment.

Mr. Zakaria, however, moved on and has never been tainted by the fallout from the partnerships.

By that time, he had developed a close relationship with Mr. Patrick, a senior Merrill Lynch banker with a keen interest in the tax work that Mr. Zakaria was doing.
Mr. Patrick oversees all finance, tax, legal and research functions within Merrill and is a close adviser to Mr. O'Neal. He is seen within the firm as a de facto president and as an architect of its restructuring efforts.

During his 24 years at the firm, Mr. Patrick has twice served as chief financial officer, has headed the equity markets group and has run the insurance business. He is best known for having helped invent zero-coupon bond instruments convertible into equity, called Lyons for liquid-yield option notes, in the mid-1980's.

Arcane yet lucrative, these products opened a new vista for Merrill corporate clients, allowing them to raise cash by issuing debt, pay out less in interest and get a tax break in the process. They were a wild success, generating hundreds of millions in fees for Merrill and spurring copycat products from Merrill's peers.
IMPRESSED with Mr. Zakaria's work on the tax shelters, Mr. Patrick became his mentor and moved him to the firm's corporate finance group. Although the tax shelters were an embarrassment for the firm, the powerful demand for them, together with the success of the Lyons, made it clear to top Merrill executives like Mr. Patrick that the real potential on Wall Street was in the design of instruments that allowed clients to raise money while paying less taxes.

By the mid-1990's, Mr. Zakaria and his team, under the careful eye of Mr. Patrick, were churning out and marketing several similar tax-avoiding financial instruments. Called trust-preferred securities, they were an evolution of the Lyons product, with specific trademarked names like Strypes and Prides.
Each served a different purpose, but the overriding aim was the same: to allow a company or individual to raise cash while paying as little tax as legally permissible.

Mr. Zakaria's team manufactured the products, and Mr. Patrick, an experienced relationship banker, sold them to clients like Sam Zell, the Chicago-based real estate investor, and Eli Broad, the chairman of SunAmerica. While the I.R.S. has raised questions from time to time about these products, it has never prohibited them and they have wide acceptance on the Street.

On the surface, the relationship between Mr. Patrick and Mr. Zakaria seems an odd one. Gruff and cocksure, Mr. Patrick, 57, is of Irish descent, a graduate of Rutgers with an M.B.A. from the University of Pittsburgh, and a product of gritty Youngstown, Ohio. The urbane Mr. Zakaria comes from a different world.
But many who know them say they have much in common. They are both schooled in numbers and are supremely confident in their own abilities, sharing a propensity to snap at those who fail to grasp their logic. Both are golf enthusiasts and have been known to drop everything to play.

They even invest together. They were partners in their own personal investment fund, called Youngstown Global Partners, after Mr. Patrick's hometown. The fund would take positions in everything from stocks traded on the Bombay Stock Exchange to hot initial public offerings like Einstein Bagels, a company that Merrill bankers took public in 1996, which later filed for bankruptcy protection and is now owned by New World Coffee-Manhattan Bagel.

The Youngstown fund is inactive, but it is indicative of the pair's close relationship.

In 2000, Mr. Patrick was appointed chief financial officer for the second time by Mr. Komansky. One of his first moves was to recommend that Mr. Zakaria be named head of corporate risk management. That happened in May 2000, with Mr. Zakaria reporting to Mr. Patrick.

About that time, the race to succeed Mr. Komansky as chief executive was heating up. The Merrill board had decreed that by the end of 2001, Mr. Komansky was to anoint a president who would then take over as chief.

It was a bitterly contested race among Mr. O'Neal, who headed the private client business at the time; Mr. Peek, of asset management; and Mr. Davis, of investment banking. Top Merrill executives picked their horses early and hoped for the best, knowing that their jobs could well depend on who eventually won.

Early on, several Merrill bankers said, Mr. Patrick sided with Mr. O'Neal. Mr. Patrick knew Mr. O'Neal when he was a rising star in Merrill's high-yield bond department in the early 1990's, and had been impressed with his analytical mind as well as his client skills. What's more, Mr. Patrick had a contentious relationship with Mr. Peek, who was seen as a favorite of Mr. Komansky's.

Mr. Patrick and Mr. Komansky had their differences, too.
In 1993, the two were contenders for the presidency of Merrill, and when Mr. Komansky won, Mr. Patrick endured seven years of exile in Chicago, running the firm's special advisory group.

Mr. Patrick has always had a green-eyeshade mentality when looking to the firm's future. He looked askance at Mr. Komansky's charge into new markets like Canada, Australia and Japan, insiders say. In fact, like many other Merrill executives, he was an aggressive seller of the company's stock through much of 2000 and 2001, according to securities filings.

In July 2001, the Merrill board, concerned about the firm's shrinking profits, forced Mr. Komansky's hand, and Mr. O'Neal became president and the chief executive heir apparent.

Driving the decision was Mr. Luciano, who in his position as chairman of the board's management committee led the search for a new chief. He remembered Mr. Patrick and Mr. Zakaria well from their work 10 years earlier on the tax shelters for Schering-Plough and came to know Mr. O'Neal through them. The four also shared a passion for golf and spent hours together at Mr. Luciano's various golf clubs.

Several senior Merrill Lynch bankers now say Mr. Luciano was convinced that Mr. O'Neal -- with Mr. Patrick and Mr. Zakaria being crucial members of his team -- would have the colder, more objective approach needed to cut the fat from the firm.
Behind the scenes, William A. Schreyer, Merrill's chief executive during the 1980's, also played a significant role, these people say. He, too, knew Mr. Zakaria and Mr. Patrick from their tax-shelter work and cast his influential vote in favor of the O'Neal team.

On Oct. 5, 2001, Mr. O'Neal promoted Mr. Zakaria to his current post at global markets and investment banking. Later, in November, he named Mr. Patrick executive vice chairman.

For the moment, analysts are cheering Mr. O'Neal and his number crunchers. Profit margins in important areas like investment banking and the brokerage business are rising in the wake of the layoffs. The company's stock fell 27 percent in 2002, in line with other brokerage stocks, and closed on Friday at $39.97, 32 percent off its 52-week high.

OTHER large Wall Street firms are increasing layoffs, a sign that they, too, are growing more concerned about the depths of the market's slide.

''Although you worry that they may have cut too far, the fact that Merrill's competitors are throwing in the towel is a confirmation that O'Neal was right,'' said Guy Moszkowski, a brokerage analyst at Salomon Smith Barney. ''And while they have downsized at just about every level, they have kept their rainmakers.''
Still, many wonder how a bear-market Merrill will fare when equity markets rebound. Over the last year, many top deal makers have left the firm, and Merrill has dropped to sixth place, from third, in worldwide merger advisory work. If Mr. O'Neal and his team are wrong about the length of the market's collapse, Merrill may well suffer -- and require another redesign.



FIG House of the Year/Europe: Merrill Lynch
Published: 05 September, 2005 Page: 80 Strategic thinking about structure and organisation at Merrill Lynch impressed the judges this year.

Its ability to deal with all the complexities intrinsic in organisational change and produce an integrated FIG platform show a willingness to adopt radical thinking. This platform encompasses fixed income, M&A and equity activities on a global and regional basis.

Using this platform as its springboard, the bank has won top mandates. It is now the dominant underwriter across all asset classes of fixed income hybrid capital. Likewise, it is a leader in advisory mandates and equity capital product issuance.

Its restructuring of Royal Bank of Scotland, Santander and Abbey celebrates a philosophy that stresses the critical importance of cross-border structures, and of banking cadres who see the market as fluid and multi-dimensional rather than narrowly national.

According to Andrea Orcel, head of global financial institutions group and co-head of global markets and investment banking for EMEA, Merrill’s success has been helped by its organisational structure.

“Merrill Lynch has long used a cross-border model for its FIG strategy and now that is paying off. We are closer to clients, we are getting in earlier on the deals and we are able to use our innovative product range to satisfy them. Many clients have sat up and taken notice in the past year as Merrill has increasingly differentiated itself from its competitors in the level of idea generation, product innovation and execution across all aspects of the business. The progress in Merrill Lynch’s market share is a reflection of this.”


7. Merrill Lynch Announces Minority Investment in GSO Capital Partners L.P.

NEW YORK, May 21, 2007 — Merrill Lynch (NYSE: MER) today announced that it has agreed to purchase a minority stake in GSO Capital Partners L.P. ("GSO"), a New York-based registered investment management firm. As part of the transaction, Merrill Lynch will invest capital in a number of GSO's strategies. Financial terms were not disclosed.

"GSO has a uniquely talented team of investment professionals who have extensive expertise in the leveraged finance marketplace," said Greg Fleming, co-president of Merrill Lynch & Co., Inc. "We look forward to working together to grow their firm by utilizing the global resources of Merrill Lynch."

"Merrill Lynch has world-class franchises in products and geographies that are very relevant to our investment strategies," said Bennett Goodman, senior managing partner of GSO. "We look forward to collaborating with them on future projects."

"This investment in GSO is a continuation of our strategy to invest in best-in-class alternative investment managers worldwide," said Rohit D'Souza, head of Global Alternative Investments and global head of Equities at Merrill Lynch.


8. Merrill strategy threatened by bad loan market
Some on Wall Street fear Merrill Lynch's exposure to the troubled subprime lending market threatens its acquisition plans.

February 21 2007

Analysts may be hailing Merrill Lynch's appetite for acquisition, but new fears are rising on Wall Street that Merrill's foray into the subprime mortgage lending market could put the kibosh on its plans to continue to target more companies aggressively.

Merrill Lynch (Charts) has been no stranger to acquisition in its recent quest to expand into high-growth areas like private equity and high-net-worth retail banking. The company has promised that it will continue to shop around for profitable businesses as strong global markets and a healthy backlog of M&A deals portend another profitable year for investment banks.

But its purchase of subprime mortgage lender First Franklin in September is raising concerns that the troubled mortgage space could be the wrench that slows down Merrill's momentum.

Since 2004, Merrill Lynch has spent almost $3 billion, snapping up around 18 different businesses, including First Franklin at a price tag of $1.3 billion. The company's most recent buy of retail bank First Republic last month for $1.8 billion - its largest deal in a decade - earned it kudos from Wall Street as analysts said Merrill was on the right track toward plugging gaps in its business lines and expanding its base of high-net-worth clients.

But the First Franklin acquisition has received mixed reviews and caused some analysts to worrying that Merrill's investment into the subprime mortgage space - a hot market for banks in recent years - could have come too late.

"First Franklin is going to be more of an integration and absorption issue than it seemed at first blush," said David Hendler, senior analyst at CreditSights. "[Merrill Lynch] rushed to fill in a need but that market may have peaked, creating less revenue opportunities and more loss exposure than they expected."

Hendler added that the headache of trying to navigate the subprime mortgage market at a time when delinquent borrowers are defaulting on loans in droves could slow down the company's acquisition plans.

Mortgage defaults: Latest woe for housing
It's against this backdrop that Merrill bought First Franklin last September. Now the company is going to have to spend its resources and energy making sure that underwriting standards are up to snuff and that Merrill has enough reserves to cover potential losses, Hendler said.

That may leave it little time to ponder acquisitions in other areas, he added.

But Dick Bove, financial strategist at Punk, Ziegel & Co., said that Merrill's acquisition strategy is broad and not wholly focused on subprime mortgages. By expanding into more profitable areas such as trading, retail banking for affluent customers and private equity through small, bolt-on acquisitions, the company is putting its capital to good use.

He added that subprime mortgages, while troublesome for the industry, were nonetheless just one part of its overall growth plans.

And, if done right, Merrill Lynch could stand to make money.

Banks like Merrill, Bear Stearns (Charts), Lehman Brothers (Charts) and JPMorgan Chase (Charts) have long been attracted to buying subprime loans from lenders because they can convert them into mortgage-backed securities and sell those bonds to hedge funds and other institutional investors. It's been a profitable endeavor in the past few years for those companies that got into the market at the right time.

But with defaults on subprime mortgages rising rapidly, mortgage lenders have been pushed into bankruptcy. And big banks, like HSBC (Charts), that bought those now troubled loans found themselves putting aside massive amounts of money in provisions to cover defaults. HSBC set aside $10.6 billion in 2006, while New Century Financial (Charts) reported its first quarterly loss since 2001 because of the deteriorating market.

"Brokerage houses are probably overpaying for these assets currently when they buy them off lenders," said Steve Roukis, managing director and portfolio manager at Matrix Asset Advisors, which owns shares of Merrill Lynch. "There are other ways Merrill Lynch can make money."

By acquiring First Franklin from National City (Charts), Merrill took on the responsibility for underwriting the loans, rather than simply buying the loans from other lenders. That way, the company could ensure that the mortgage-backed securities it created were less likely to default, he added.

"And even if for some reason they did get it wrong, First Franklin is a small enough deal that it's not a big financial impact to them," Roukis said.

Roukis and Bove added that there's little chance that Merrill Lynch will abandon or slow down its acquisition strategy over troubles in one area.

Goldman seen going on $19B shopping spree
Analysts said the company is still working to play catch up with its peers like Goldman Sachs (Charts) in areas like commodities trading and structured finances - areas that were slashed after current Chief Executive Stan O'Neal took over the company in 2002 and set about reorganizing its businesses and cutting costs.

"Merrill has a tremendous amount of excess capital at hand and is using that that capital to build out its businesses in sectors where it has been weak," Bove said.

Analysts said the company's stake in money manager BlackRock Inc. last year and the acquisition of the boutique investment banking Petrie Parkman & Co. were among Merrill's smart buys to increase its foothold in high-growth areas like investment banking and asset management. Its purchase of First Republic gave the company access to high-end luxury lending as well as a more affluent customer base, with which it can cross-sell other products.

And the company is looking to increase its revenue from abroad, which could open the door for more overseas acquisitions regardless of troubles at home.

In a recent research note, Bank of America analyst Michael Hecht said Merrill's co-heads of global markets and investment banking expect non-U.S. revenues to grow to 75 percent of its total revenue over time. Merrill's overseas revenue accounted for 50 percent of its total investment banking revenue in 2006.

Analysts said with such lofty goals, Merrill is going to have to pursue its aggressive acquisition strategy.

"There's lots of opportunity for Merrill," said Matrix Asset Advisors' Roukis. "By pursuing these small tuck and fill acquisitions, they're reducing risk to smaller amounts and stringing together pearls to make the franchise better."

9. Merrill Lynch & Co., Inc. (MER)
Q1 2007 Earnings Call
April 19, 2007 11:00 am ET


Jonathan Blum - Investor Relations
Jeffrey N. Edwards - Chief Financial Officer, Senior Vice President

From a regional perspective, in the U.S. we grew revenues at double-digit rates both sequentially and year over year, but our growth outside the U.S. continued to be faster, at a rate more than 10 percentage points higher than in the U.S. Non-U.S. net revenues comprised 39% of Merrill Lynch’s total net revenues for the quarter and 54% of net revenues in Global Markets & Investment Banking, or GMI. Both those proportions set new quarterly records. We continue to believe that the profit pools in international markets will grow faster than those in the U.S. for the foreseeable future, and therefore we continue to make investments necessary to build out our platforms broadly in these markets, complementing our strong presence in the U.S.

I want to stress the importance of the investments we have made to diversify and grow our businesses. Not just geographically, but also across asset classes, products and clients. In key businesses in both GMI and Global Wealth Management, or GWM, we continue to successful our strategy to broaden and deepen our platform. The benefits of this diversification become especially evident in quarters such as this one, where a clear dislocation in an individual market, the subprime mortgage space in the U.S., did not impede the overall momentum of our franchise. As we have seen in other quarters in past years, it is not at all uncommon -- and in fact it is a virtual certainty -- that different markets will experience different periods of both strength and weakness at different times.

As we have built many sources of revenue growth into our portfolio of businesses across many regions, we can continue to expand even as individual businesses experience slowdowns or corrections. This also allows us to maintain our strategic commitment to continue to build our capabilities in the areas experiencing tougher conditions so that as the market turns, we are even better positioned than before.

New initiatives that will drive future growth continue apace. During the first quarter, we announced the acquisition of First Republic Bank which is on track for a third quarter closing. First Republic is a uniquely complementary platform to our GWM business, as we look to expand in the high growth private business sector. We also opened new institutional offices in Turkey, Russia and Dubai. The key long-term drivers of our strategy: economic growth, wealth creation and globalization remain in place and continue to give rise to substantial opportunities for to us grow and diversify revenues further.

Now I will provide a more detailed review of our first quarter performance by segment.

First GMI. GMI turned in another record-setting performance as momentum accelerated across its expanding global portfolio of businesses, and investments for growth continue to pay off. Net revenues of $6.5 billion were 22% higher than the 2006 fourth quarter and an even stronger 43% higher than the 2006 first quarter.

Pretax earnings for the quarter were $2.3 billion, up 48% from the prior-year period on the strength of both the higher revenues and good operating leverage driving the pretax margin to 35.8%. Sequentially, pretax earnings were down 10% as the compensation ratio rose from the unusually low fourth quarter.

Now turning to FIC, which produced an outstanding first quarter performance. Net revenues in FIC set a new record for the third consecutive quarter at $2.8 billion, up 22% from the fourth quarter of 2006 and 36% from last year’s first quarter. The sequential increase was reflective of our enhanced positioning in a highly diversified set of asset classes including record revenues from our credit, commercial real estate, rates and currencies businesses which substantially more than offset the impact of revenue declines for mortgages and commodities. Compared with the first quarter of 2006, all major product lines with the exception of mortgages reported higher revenues.

I want to pause here to make a few comments about our U.S. subprime mortgage business, since I know it has been a topic of much discussion and speculation. Let me put this business into context. As we noted in our earnings release, if you looked at both last year and the first quarter of this year and added up all of the originations, securitization, warehouse lending, trading and servicing revenues, both directly in our subprime business as well as our CDO activity involving subprime, including all the retained interests, you would see that revenues from subprime mortgage-related activities comprise less than 1% of our net revenues for those five quarters. Even if you were to incorporate pro forma, the revenues of First Franklin as if it were a part of our firm for all of 2006, the aggregate contribution would still be less than 2%.

That said, this is an asset class that will continue to be significant, both in the U.S. and worldwide. The strategic importance of the First Franklin acquisition was clearly evident this quarter, as having both origination and servicing capabilities enabled us to see trends emerge sooner and adjust underwriting standards and pricing more rapidly. I would also point out that our risk management capabilities are better than ever, and crucial to our success in navigating turbulent markets. In fact, we have been capitalizing on the market dislocation by recruiting the best talent from competitors, and we fully expect to emerge from this cyclical downturn even better positioned.

At this point, we believe the issues in this narrow slice of the market remain contained and have not negatively impacted other sectors. Finally, it is important to understand that we manage our FIC businesses in aggregate as a portfolio and that portfolio delivered record revenues for the quarter. On a broader basis, most FIC markets experienced a continued favorable environment characterized by both high levels of client activity and opportunities for proprietary trading, enabling outstanding results as we continue to build out our capabilities in areas that are poised for growth.

Let me give you some more color. We had a broad-based performance in our rates business, including strength in derivatives and exotics. In credit we saw particular strength in trading distressed assets in emerging markets. In commercial real estate we saw solid gains on our principal investments and in our CMDS conduit business. We had a very strong trading performance in commodities, especially in the core gas and power areas, where we are a market leader both in Europe and the U.S. Regionally, we set revenue records in both the Pac Rim and EMEA regions, complementing strong double-digit growth in the U.S.

Next I will talk about equity markets. Equity markets net revenues increased very strongly as well, setting a new record at $2.4 billion, up 35% from the fourth quarter and 50% from the year ago quarter. Every major revenue category increased both sequentially and year on year, with the exception of private equity, which was down slightly from the fourth quarter. In particular, the equity-linked trading business showed the strongest absolute and relative growth among the trading areas, setting a new quarterly record as client demand for derivatives products continues to accelerate.

In the cash trading business, growth was driven by improvements in electronic trading, demonstrating the impact of the investments we have been making, combined with favorable market conditions. The strategic risk group, which is dedicated to proprietary trading, registered a record quarterly result for the second consecutive period as we continue to build out that unit. Revenues from the financing and services business, which includes prime brokerage, were also up as this business continues to gain momentum as evidenced by our recent ranking as the number 2 prime broker in Europe by Global Custodian. While down sequentially, revenues from private equity were still quite robust and up significantly year on year, as our publicly traded investments continue to perform well.

From a regional perspective, EMEA was a clear standout. We believe EMEA now represents the largest and fastest-growing market within equities and we are extremely well-positioned with EMEA contributing nearly a third of our global equity markets revenue. Across our global markets businesses, our capabilities have never been stronger and we are in a better position than ever to drive growth and manage risk across our global franchise.

Now to investment banking, which generated record net revenues for the second quarter in a row at $1.4 billion, up 4% from the fourth quarter and 47% year on year. This quarter’s revenues were particularly strong in merger and acquisition advisory and leveraged finance, two core areas of focus for us and were achieved despite the typical seasonal slowdown in broader market volumes. Regionally, EMEA stood out in terms of growth, also setting a quarterly record for investment banking revenues.

M&A advisory revenues of $399 million were the second-best ever for our firm, up 55% year on year and 40% sequentially. For the quarter, Merrill Lynch was number 2 in global completed M&A volume and debt origination revenue set a new record up 38% from the prior year period and 9% from the previous record set in the fourth quarter of 2006.

Strength in this category was driven by leveraged finance where we set a new revenue record as we ended the quarter number 2 in the global high yield lead tables. Equity origination was up 53% from the year-ago period, but down 24% from the particularly strong fourth quarter as activity levels moderated around the globe. Our market share remains strong as we finished the quarter in second place in the global equity and equity-linked lead tables and we’re number 1 in IPOs.

Our increasing emphasis on providing multi-facetted solutions for our clients was evidenced by the work we did for Freeport McMoRan around its acquisition of Phelps Dodge, creating the world’s largest publicly traded copper company. In this situation, we advised Freeport McMoRan on the transaction, arranged $17.5 billion in debt financing, which included the largest high yield note transaction ever at $6 billion, and led $5.8 billion in equity and equity linked financing, setting a record for an already public U.S. company. Our outstanding performance in investment banking underscores the progressively more powerful market position we have attained through key investment and personnel.

Beyond these strong results, our investment bankers are increasing adding value to other areas of the firm, sourcing revenues in the derivatives, commodities and principal investments and introducing clients to our private wealth advisors. These non-traditional sources of revenue will continue to be a significant area of focus as we work to maximize the revenue potential from the high quality relationships our investment bankers have with their clients.

The environment for investment banking remains constructive, particularly for large multi-product transactions. Even after this strong first quarter, our pipeline closed the quarter at a new period-end record. The sequential increase in the pipeline was driven primarily by debt and equity origination, the year-on-year increase was broader across all three product areas and all three primary regions. Subject to market conditions, as always, we are optimistic about our ability to convert this pipeline into revenues.

Now turning to GWM. GWM comprises our Global Private Client and global investment management businesses, the firm’s share of after-tax earnings for BlackRock are included in the GIM portion of GWM revenues for both the fourth quarter of last year and the first quarter of this year, but not the first quarter of 2006 when our Asset Management activities were reported in the former MLIM segment. GWM generated solid revenue growth and strong pretax profits in the first quarter, driven by revenue growth in both GPC and GIM. Net revenues of $3.4 billion were up 16% year on year and 4% sequentially. Pretax profits of $842 million were up 31% and 11% respectively. The pretax margin of 24.7% was [24.7%] higher than both prior periods.

GPC net revenues for the first quarter were $3.1 billion, up a little over 2% sequentially and 11% from the prior year quarter. These were GPC second-highest quarterly net revenues ever, short of the record set in the first quarter of 2000. Sequentially, the overall revenue increase was driven by every major category. Transaction and origination revenues rose amidst a meaningful activity pickup early in the quarter. Net interest in fee-based revenues also reached all-time highs. Year-over-year, the overall GPC revenue increase also came across every revenue line with fee-based revenues contributing the most. Transaction and origination revenues were driven by higher new issue origination activity in closed end funds, and net interest increased meaningfully.

GPC continues to make progress on key growth initiatives, including private banking where, as I mentioned earlier, the First Republic acquisition will enhance our ability to grow in this attractive sector. We believe that First Republic will be able to expand on a more rapid basis as part Merrill Lynch than as a standalone company. Once the acquisition is completed, together we will focus on intelligently building out the bank’s footprint as well as leveraging Merrill Lynch’s wealth management expertise and tailoring products for First Republic’s clientele.

Expanding non-U.S. operations remains a priority. GPC again grew non-U.S. revenues at a faster sequential pace than the U.S. business and is implementing a new business model focusing on ultra-high net worth clients.

We continue to invest in technology. In an increasingly competitive industry, the level and consistency of our revenues and earnings enables us to afford the substantial investments in technology required to empower FAs to deliver best-in-class client service, products and advice.

On to GIM which reported first quarter revenues of $261 million, up 24% sequentially and 151% from last year’s first quarter. Sequentially, growth was driven by an increased contribution from our investments in BlackRock and other investment management companies. Compared to the first quarter of last year, most of the increase reflects the inclusion of BlackRock in the current quarter but not in the earlier period. However, other areas of GIM also generated revenue growth. We continue to be extremely pleased with the successful integration of MLIM and BlackRock and refer you to their earnings release this morning for a review of their outstanding progress.

For GWM as a whole, first quarter asset flows into private client accounts were strong. Net inflow into products that generate annuitized revenues were $16 billion for the quarter. Total net new money into the firm was also $16 billion, bringing total client assets to a new record level. The GWM strategy remains consistent: investing in an industry-leading global platform that attracts superior professionals and enables them to act as central partners to their clients, providing best-in-class service, products and advice, and positioning the business for further growth.

That concludes my discussion of our segments. I will now return to the income statement for the firm as a whole, beginning with expenses. First compensation. The ratio of compensation expenses to net revenues for the first quarter was 49.6%, about 50 basis points lower than in the first quarter of 2006. The decline in this ratio reflects operating leverage to increased revenues, driven by our continued bottoms-up discipline around compensation, even as we continue to hire aggressively around the world to enact our growth plans. As usual, the quarterly progression of our compensation ratio will depend on how the environment evolves, both in terms of revenues and competitive trends in compensation.

Next, non-compensation costs, which in the first quarter totaled $1.9 billion, up 15% from last year’s first quarter, consistent with the growth of our business; and down 3% sequentially. The ratio of non-compensation expenses to net revenues in the quarter reached a record low of 19.0%, down 1.4 points from the year-ago period as we were able to deliver operating leverage despite the significant growth in activity levels and the inclusion of First Franklin, an expense intensive business. We will stay focused on non-compensation expenses, even as we make further investments in infrastructure to drive growth.

Now our effective tax rate, which for the first quarter was 30.3%, up 3 points from the full year 2006. At this point, we expect this rate to continue to increase modestly as our earnings grow. But again, let me point out that both the rate for individual quarters and the full year rate can be impacted by various factors, including changes in tax laws, settlements and business mix.

Finally, capital management. We continue to execute aggressively on the share buyback front, repurchasing more than $22 million shares, $2 billion worth of our common stock during the first quarter. Our plan is to remain active in repurchasing our stock, although as we seek approval from First Republic’s shareholders for that acquisition, we will be required to withdraw from the market for a period of time. That may impact the absolute amount we are able to buyback in the coming quarter.

We continue to effectively balance increasing our ROE while growing book value per share. Book value per share at the end of the quarter was $41.95, up 13% from a year ago, and up $0.60 from year end, despite the impact of share repurchases and our annual stock-based compensation grant. We also increased our ROE, which was up more than 4 points from the year-ago period to 23.3%. This is a direct results of our efforts to grow revenues, drive higher margins and actively manage both our balance sheet and equity capital. We are pleased with our continuing progress but remain focused on further improving this important metric. We are confident that in similarly conducive markets the successful execution of our growth strategy will allow us to drive our ROE higher and to continue to increase both book value per share and over time, dividends.

This wraps up my formal review of first quarter results. Having produced our best revenues ever, we enter the second quarter with strong momentum and great optimism about our future. The market environment has been favorable for most of our businesses but we are mindful that the markets can turn quickly. We also recognize that seasonally the first quarter is often the strongest of the year, particularly for transaction-oriented businesses such as trading and parts of GPC.

But with each quarter, Merrill Lynch becomes stronger and more balanced across businesses, across regions and across asset classes. We have invested aggressively to build our platform but we continue to see opportunities for further investment to drive future growth. We continue to successfully add and develop outstanding talent around the world, increasing our ability to deliver superior service to our growing client base. As always, execution will be key. But our track record to date makes us confident we will deliver.

Now I will be happy to take your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Glenn Schorr - UBS.

Glenn Schorr – UBS

Good morning, just a couple quickies on the balance sheet first. I see that you issued about 1.6 billion, is that all in preferred this quarter?

Jeffrey N. Edwards

That’s right, which of course will increase our dividends as you model going forward by about $20 million a quarter.

Glenn Schorr – UBS

It is now, I don’t know, over 11% of total equity. Is there any limitation on that in terms of capital ratios and your thinking around that? Because obviously there is a boost on ROE -- in a good way.

Jeffrey N. Edwards

Well, I think as we approach our capital management, one important component certainly is how we look at different pieces of our capital base. To that end, both preferred stock and other hybrids are critical components of that.

At this point, we feel that we have got an appropriate balance and will continue to look at that on a quarter-by-quarter basis going forward. We are not constrained from a ratio perspective at this point. But we do think it reflects good capital management and is part of our improving ROE story, as you point out.

Glenn Schorr – UBS

Staying there, long-term debt was up $24 billion or thereabouts. We can’t see the asset side. If you could just tell us what went on there, or maybe talk about it in terms of leverage and how you are thinking about that.

Jeffrey N. Edwards

I think a couple of points there. I would say that you should expect to see our balance sheet will be bigger at quarter end, consistent with the pattern you have seen over the last several quarters as we have grown our business. Certainly that’s a part of the growth in our business. Part of that growth of balance sheet, as you point out, needs to occur in a way that’s consistent with sound capital management and liquidity. Part of that increase in long-term debt certainly reflects that.

A couple of other points I would make as well. One, it’s been an important part of our strategy to not just grow our balance sheet but increase the strength of our liquidity as well, and that certainly has happened over the course of the last several quarters and happened again this quarter. That long-term debt issuance is partly reflective of that. We issued some subordinated debt during the quarter which is part of tower strategy to comply with CSE guidelines for total capital. So all of that comes into play during the course of the quarter.

The last thing I think I would say is markets were quite conducive, quite favorable during the quarter. We funded a good amount and I would expect over the course of the next few quarters you would see that grow at a slower pace.

Glenn Schorr – UBS

FAS 157, 159; assuming no comments, that means no material impact. Just curious how the ownership position in Bloomberg falls under there? In other words, is there a piece that’s optional?

Jeffrey N. Edwards

The first part of the question, 157/159, you know, the starting point is if you look at retained earnings or shareholder’s equity broadly, was there any adjustments to first quarter? If you look at the adoption of 157/159/48 which also occurred during the quarter, no significant impact at all in shareholders’ equity as a starting point. In terms of the income statement for the quarter, as you know, under the new guidelines we will no longer be deferring our 02/03 revenue so that is now going into the income statement directly.

The last thing that I would say there is there was a part of our liquidity portfolio that previously had been under available for sale. We elected to put under fair value and there was a moderate amount of income associated with that, but less than 1% of revenues. Bloomberg we did not elect to put under fair value. We continue to equity method account for that.


Your next question comes from the line of Mike Mayo - Deutsche Bank.

Mike Mayo - Deutsche Bank

Could you elaborate more on the non-U.S. growth? You said 10 percentage points higher growth outside the U.S., is that correct?

Jeffrey N. Edwards

That’s correct. That’s true for both the sequential growth and for the year-on-year growth.

Mike Mayo - Deutsche Bank

That implies 30% growth outside the U.S.? Did I do my math right?

Jeffrey N. Edwards

I won’t get into the arithmetic of exactly how that works in different periods, but if you assume at least 10% more rapid growth both sequentially and year on year, I think you get a sense for the greater momentum that that business is producing.

Mike Mayo - Deutsche Bank

Is that sustainable? It is a pretty high rate. Can you give us some color by region, too?

Jeffrey N. Edwards

Well, as I think I mentioned on the call, we set records really in all our global regions, not to understate the importance of the U.S., we also had record revenues there. It is just that the growth was more rapid in the international markets. But I think you can tell from that that the growth has been strong, really across the board there. That’s how I would characterize it. Really strong growth in both Europe, Pac Rim and even in the Canada and Latin America sub regions of the Americas.

Mike Mayo - Deutsche Bank

Retail brokerage revenues, they were up in the quarter but not as strong as a few others. Was there any slowdown in March, and is that continuing?

Jeffrey N. Edwards

On the private client side let me make a couple of observations. The first one I would say is if you look on a year-on-year basis the growth, I think, continues to be quite solid. Up 11% in revenues from the first quarter of last year. Fund flows were strong. We continue to get operating leverage in the global wealth management business broadly. So I think that business continues to show steady growth as it continues to steadily execute.

Mike Mayo - Deutsche Bank

As far as March activity?

Jeffrey N. Edwards

I would say it was not unusual in that business from the first quarter. You tended to see a little bit more active transactional volumes in the early part of the quarter than you do in the late part of the quarter. That typically follows into the second quarter as tax season comes up, but nothing unusual.


Your next question comes from the line of William Tanona - Goldman Sachs.

William Tanona - Goldman Sachs

Obviously, the environment became a little bit more tricky this first quarter and there were concerns with subprime, which you guys seem to have squashed regarding your exposure there. I wonder if you have changed your appetite in this environment, or are rethinking what you put on your balance sheet or what type of risks you might take? Or if at all it has changed how you are approaching the business right now?

Jeffrey N. Edwards

Well, let me make a couple of points about that. Certainly risk management, as I said in the prepared remarks is a crucial aspect of our business. I think we have done a very good job in negotiating these markets as a result of that. So how are we approaching that? We are certainly looking at new ways to do business where there are opportunities for us to either share risk or pre-sell some of the risk and still do good business. I think we are approaching it in a prudent way given the environment.

Let me just reiterate that in these markets, in these asset classes, it is important to recognize that there are going to be periods of dislocation. This particular quarter, there was one in the U.S. subprime business and as you point out, it is important to react to that. But as part of a broader portfolio of businesses, you are able to deal with those types of markets. As you can see, the fixed income business just powered right through that.

William Tanona - Goldman Sachs

That’s helpful. Your commentary there in terms of sharing risk, obviously I think there is a lot of concern out there because you guys are pretty active on the CDO side and the warehouse side of that business. Can you share your thought process as it relates to that and what the trends you are seeing there in the overall business, as well as possibly even in the subprime space there?

Jeffrey N. Edwards

Well, it was a very active quarter for securitizations, both in the ABS space directly and in the CDO space broadly. CDOs, in addition to having a very active ABS calendar, we saw attention in that business broadening out to other asset classes as well. I would point out that even during the most uncertain times during the quarter we were able to price transactions. We priced 28 CDO transactions in the quarter, 19 of them were ABS CDOs and more than 10 of those deals were in the first couple of weeks of March, so while it was certainly a more difficult environment, we continued to see an ability to transact and to move volume.

On the subprime business, maybe just a couple more comments there. While it was a difficult environment, we were able to actually increase origination volumes at First Franklin in the quarter. In fact, we had record volumes in both January and February. We did that in the background where we were enhancing our already strong underwriting standards. We rationalized our rate of products, eliminating certain products that were performing less well and we successfully raised coupon rates. We also saw during the quarter the first payment defaults at First Franklin, First Franklin-originated paper, fall steadily throughout the quarter. They started out and remain at a level far below the industry.

So I think the trends there show some signs of positiveness. While it is early to say anything obviously about the second quarter, I just point out that we did our First Franklin securitization earlier in the week. It was a $2 billion securitization. We saw spreads tighter, really across all tranches from where they were a month ago, as investors have clearly begun to reengage.

William Tanona - Goldman Sachs

Great. Those are helpful details. Thanks.


Your next question comes from the line of Roger Freeman - Lehman Brothers.

Roger Freeman - Lehman Brothers

With respect to the retail trends, just following up on Mike’s question, what’s the sense you are getting about the activity levels of your retail client base? The online brokers that reported have issued pretty subdued outlooks with respect to the retail environment. Are you seeing some of those same trends in your business?

Jeffrey N. Edwards

Well I think the most important trend to point to in our business is continued good flows on the money funds, on the fund flow side, particularly among products going into the annuitized revenue products which were up $16 billion for the quarter.

I think we continue to execute on our strategy of improving our platform, adding financial advisors, attracting assets, and we believe we will continue to drive steady growth as a result of that.

Roger Freeman - Lehman Brothers

Staying on the GPC side of the business, you talked in your prepared comments about the high net worth initiative in Europe. Can you talk about where that initiative is, how early days that is there? And then maybe the growth rates. You talked sort of broadly that international is growing 10% above the U.S. What would that look like in the GPC business and how could that accelerate if this initiative takes off?

Jeffrey N. Edwards

I would say we are at the early stages of the repositioning internationally of our ultra-high net worth client initiatives. So I expect that the impact there will be more pronounced going forward. Private client internationally, let’s talk about each of the different regions there. EMEA first of all, we continue to focus on the U.K. and the Middle East in particular. In Asia, the two countries, while I would say we’re seeing good growth in the platform broadly, I would highlight two countries in particular. India, where we have been investing aggressively to increase our platform in India. And in Japan, where we have a joint venture with Mitsubishi UFJ and we have now added about 20 new financial advisors since that initiative begun in the second quarter of last year.

Roger Freeman - Lehman Brothers

Lastly, can you talk at all to the VAR during the quarter, or at least directionally from the fourth quarter?

Jeffrey N. Edwards

You will see it in our Q of course, but directionally it won’t surprise you I don’t think, that it will be up, consistent with the performance in our trading businesses. We have talked for some time now about our strategy of adding capabilities, both people and technology to support growth and risk taking. That risk taking is evident in the results and you will see the VAR reflect that as well.


Your next question comes from the line of James Mitchell - Buckingham Research.

James Mitchell - Buckingham Research

Good morning. Just a quick question on trading, particularly equities. We did see some pretty choppy markets late February/early March. Can you comment on whether you saw your results weaken a little bit in March, considering that you had a record level on the proprietary side? How did the risk management perform during that choppy period? Thanks.

Jeffrey N. Edwards

One of the points that I made at the beginning was that we saw a balance in our business across all three months, so let me reiterate that. Now that obviously suggests that there are some businesses, as you would expect in a portfolio, that will perform better in different months. We certainly saw that. The equity trading businesses were strongest in February, but March was almost as strong as February. That reflects of course all of our trading businesses.

I don’t want to particularly get into SRG on a month-by-month basis, but their performance did set a consecutive record. Part of that has been adding people in the business directly; part of it has been augmenting the people with appropriate technology. Certainly a key part is making sure we have appropriate risk management in place to support that effort.

All of that, I think, came together in the quarter.

James Mitchell - Buckingham Research

You thought that your risk management techniques were pretty on the mark this quarter?

Jeffrey N. Edwards

Yes. There is nothing that occurred in the quarter that caused us to question our risk management. I think, that wouldn’t surprise you given the strength of the trading numbers obviously in the quarter.


Your next question comes from the line of Douglas Sipkin - Wachovia.

Douglas Sipkin – Wachovia

First off, you guys provided in the press release $1.2 million remaining on the buyback authorization. Obviously some limitations now come into play with the First Republic transaction. How should we be thinking about re-upping that authorization subsequent to the closing and when some of those restrictions come off?

Jeffrey N. Edwards

Well, we have announced three different authorizations over the course of the last three years. We have executed on them. We have regular dialog with our board about the level of repurchases. We certainly intend to continue that dialog. We anticipate remaining active. But as you point out, there will be some constraints during the coming quarter or quarters around that that are specifically related to the First Republic acquisition. We will obviously abide by those restrictions during those periods.

Douglas Sipkin – Wachovia

You guys have been overcapitalized, the BlackRock transaction probably just augmented that. Subsequent to some of these acquisitions and the buybacks, after that transaction closes, how should we be thinking about your relative overcapitalization?

Jeffrey N. Edwards

We have been focused on optimizing our capitalization for some period. There are many elements to that. The most important one I would remind you is that we want to make sure we have appropriate capital to execute on our organic investment strategy, to be able to look at inorganic opportunities as appropriate and to drive higher revenues and higher earnings. That remains the primary focus of our focus on capital. But when we have the opportunity, when as a result of our balance sheet efficiency initiatives we feel we have excess capital that we can return to shareholders, either through dividends or through share buybacks, we will look to continue to do that. At this point we anticipate remaining active and will update people on a quarterly basis on that.

Douglas Sipkin – Wachovia

Can you provide any color obviously this being the first quarter of First Franklin, what potential of your securitization was funded by your own originations this quarter? That’s a metric that I know some of your competitors have started disclosing, some for longer than others. Now that you actually have made an acquisition, I’m just wondering if you have any color around that?

Jeffrey N. Edwards

Well, I don’t have the number for you specifically. But your point is exactly right, that part of the strategic thinking behind First Franklin was that it provides us an ability to control our origination. That gives us both more insight into trends at an earlier level, which allows us to better risk manage our activities and it allows us to control our underwriting standards and pricing standards better.

In the first quarter, as a new acquisition, there certainly was a period of ramp up, if you will, such that we would expect the securitizations from First Franklin going forward to be at a more regular pace than we saw in the first quarter. Going forward, we still expect correspondent activity to be important. But we can be much more selective than we have been in the past as to who we correspond with. I think that will be to our benefit as well.

Douglas Sipkin – Wachovia

I believe initially when you first announced the transaction you said that it would be accretive. You didn’t provide magnitude to ‘07. Does that still exist, given some of the turmoil we have seen in the marketplace?

Jeffrey N. Edwards

I think it is very difficult to say exactly when that turning point will come, given the volatility we saw in the first quarter. Long term there is no question that the attractiveness of the acquisition remains absolutely intact as we described, with increasing origination volumes in a period where in general we think the market was in decline, we believe we will be able to it gain market share. We are clearly able to hire talent, which will augment our position. The benefits of the origination and servicing platforms I just described are certainly intact. But it is a more volatile period and it’s a little bit more difficult to predict the exact quarter at which that transaction takes place.

Douglas Sipkin – Wachovia

Finally, valuations have come in a lot, and a lot of the capacities are in the process of coming out of the industry. Will you guys consider making another move from an acquisition standpoint if the right opportunity presented itself in the mortgage space?

Jeffrey N. Edwards

Well, let me make two comments there. One is that we continue to look for opportunities to grow this business on a worldwide basis, we have talked a lot about our U.S. activities this quarter, but it is important to understand that our mortgage activities are part of a global initiative on our part. In the past quarters we have talked about some of the opportunities and the efforts and the contributions in both Europe and Asia. That continues to be an important part of our strategy.

In the U.S., I would say our focus right now is on executing the First Franklin acquisition, making sure that the integration continues to go seamlessly and maximizing the benefit of that platform. That’s our near-term focus.


Your next question comes from the line of Michael Hecht - Banc of America.

Michael Hecht - Banc of America

Sounds like you had a pretty good, broad-based quarter with the strength in equity markets. I was hoping we could talk about what’s driving the strength in equity linked or derivatives. Is it structured product, flow-based, more concentrated in Europe or the U.S.? Is some of this environmental with the pickup in volatility, or do you think you are taking share there?

Jeffrey N. Edwards

Let me sum it up by an ‘all of the above’. I think client activity levels were certainly very strong in the business. We did see a pickup in volatility in March and so we clearly benefited from that pickup in volatility there. We continue to build out platforms to invest in technology. Structured products has always been important to that business and certainly continues to be the case.

Michael Hecht - Banc of America

Then on the fixed side, you guys noted strength in commodities trading. I’m just wondering, should we think about that as the environment being stronger in your favor in your core areas like power and gas, or just stronger growth in some of the newer product areas you have been investing in or good positioning there?

Jeffrey N. Edwards

Well we did see very strong results in our core areas, growth in power and in our core geographic markets, U.S. and Europe. But we do continue to make good progress in our other newer businesses as well. On a sequential basis, if you look at the broad-based new products: oil, coal, weather, our index products, we did see sequential growth there. There is more activity clearly in our metals business as we build out that capability. Going forward, I think we will have more to talk about there.

Internationally in Asia it was also a good quarter of growth. I mean just one thing to point out in Asia, we received a license, really the first license by a non-utility in Japan to trade power. We expect those markets will develop similarly to the power markets that we have seen historically develop in, first the U.S. and then Europe. So continued good progress on the initiatives there and we believe that ultimately that will drive more revenue growth in the future.

Michael Hecht - Banc of America

Is it possible for you to touch on the level of your overall retained interest for mortgage securitizations, non-investment grade in particular? Are you seeing any big shifts since the beginning of the year?

Jeffrey N. Edwards

If you look at our retained interest in general, one important point to make there is that the majority of them clearly are investment grade rated securities that are either part of our CDO warehouse or the result of securitizations that are effectively in inventory that we intend to sell on to investors. There is only a small part that reflects the subprime residuals.

In general, given the level of activity in securitization that I described earlier, you would expect and you will see retained interest will be up. The residual on that will be up at a much lower rate.

Michael Hecht - Banc of America

Just to come back on the retail business, any more color just on what seemed to be somewhat sluggish fee growth? It was about 1% versus 5% at the beginning of the period; client assets at about 3% growth and average annuitized assets, it just seemed like there was a little bit of a lag there.

Jeffrey N. Edwards

A couple of points to make there. When you look at our asset-based fees, first of all I think it is fair to look at it on a year-on-year basis, up 11% which I think is a very solid performance by GPC. When you look at it on a linked quarter basis, there are a couple of things going on. One, the fourth quarter always has higher Visa fees and Visa fee levels will obviously come off on a sequential basis. So that retards the growth rate to some extent.

The other point to make is that we had a very strong response particularly at the end of the fourth quarter carrying through into the first quarter to our strengthening deposit platform, and you saw a continued growth in our deposits. Some of the growth in GPC that you would other see go into asset-based fees ends up going into the interest line which was obviously up much stronger on a sequential basis.

Michael Hecht - Banc of America

That actually answers my next question which was the strong NII growth, that answers that unless there is anything else going on there.

Jeffrey N. Edwards

I think that gives you the primary color on that.

Michael Hecht - Banc of America

Can you talk a little bit about the recruiting for brokers. You guys saw about a 50-broker increase quarter over quarter, still good I think relative to your peers but a bit slower than in recent quarters. Is that intentional, or are you seeing any impact from pick up in recruiting from any of your peers?

Jeffrey N. Edwards

I think every quarter we say and mean that the competition is intense. I would say that was certainly true this quarter as well. It is important from our perspective to maintain good discipline when it comes to competing for brokers and we certainly did that. Our focus remains on building our platform and investing in technology and training, which we think will continue to provide an attractive environment for brokers.

The one other thing that I think is worth pointing out in the first quarter is we did have a restructuring in our small institutional division and that group went down a little bit. So when you look at it on a net basis, there is a little bit of noise sequentially.


Ladies and gentlemen, let me now turn the call back to Jonathan Blum for some final remarks.

Jonathan Blum

Thank you. This concludes our earnings call. If you have further questions, please call investor relations at 212-449-7119. Fixed income investors should call 866-607-1234. Thanks for joining us today. We appreciate your interest in Merrill Lynch.

10. Merrill Lynch to ramp up asset management biz in India

September 2007

DSP Merrill Lynch plans to ramp up its asset management business in India, aiming to more than double its assets managed in India by 2009 as the number of wealthy people in the country rises.

"We are targeting affluent Indians who live in India and overseas. As the regulatory environment liberalises and the capital markets deepen, non-resident Indians with an estimated $1 trillion in assets are looking to put more of that money into India," said Merrill Lynch managing director (Global Private Client), Rahul Malhotra.

"Merrill Lynch is expanding to meet the growing needs of our clients, who are increasingly seeking more sophisticated and innovative ways to invest in this market," he said.

With India's economy moving forward at an average annual rate of about eight percent, DSP Merrill Lynch also plans to double the number of its financial advisers in the country to 550 from present 250 and expand the range of products and services it offers.

"By leveraging its global platform and local knowledge, Merrill Lynch is well-positioned to facilitate access to the next generation of products and services," Malhotra said, noting that the number of high net worth individuals (HNWIs) has been growing at between 19 and 22 percent for the past two years.

Out of over 1,00,000 dollar millionaires in India, Merrill Lynch has tapped only 2,000 clients. “The company manages wealth worth $4 billion of these clients. The rest $2.5 billion has come from NRIs," Malhotra said.

The company would like to start new business verticals like Real Estate Investment Trust (REIT), commodities and commodities based products among other products, he said.

DSP Merrill Lynch currently manages about $4 billion of assets in India. Merrill Lynch said in the next two years, it will raise another $6.5 billion from high net worth local individuals and non resident Indians (NRIs) to invest in the domestic markets. As part of expansion strategy, the company opened an office in Delhi and over next 12 months it would expand its network into a dozen cities, including Pune, Jaipur, Chennai, Chandigarh, Kolkata, Ahmedabad and Bangalore.

The New York-based Merrill Lynch has been expanding its private banking business in India after increasing its stake in an Indian investment banking and wealth management venture with DSP Financial Consultants Ltd. to 90 percent, from 40 percent in December. Merrill paid DSP founder Hemendra Kothari $500 million in the transaction.

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