Originally established to assist growing companies in acquiring capital, Merrill Lynch began as Charles E. Merrill and Company on New York’s Wall Street in 1914. The next year he partnered with Edmund Lynch to form the company now known as Merrill Lynch. All of its stock was held privately until 1971, when the company went public and simultaneously released its “Bullish on America” advertising campaign. Prior to the stock market crash of 1929, only the wealthiest of Americans could afford to speculate on Wall Street.
Merrill Lynch changed all of that in the 1940s, when the company found ways to entice ordinary Americans to invest their earnings. Merrill initially employed a strategy of zero service charges, free stock information, low-risk investing and aggressive advertising to convince depression-weary Americans to temporarily part ways with their extra money. The formula worked and, for that achievement, Merrill Lynch is often credited with restoring Americans’ faith in Wall Street, which had borne the brunt of the blame for the economic hardships of the 1930s.
By bringing average citizens into the nation’s economic dialogue, Merrill Lynch was able to create the world’s largest financial empire, but like every other company, Merrill has also had to endure some rough spots along the way. 2 Over the course of the last few years, investment houses all across the United States have suffered significant losses. While Merrill Lynch has been no exception to this rule, this company has managed to sustain itself and generate a profit, even under the most foreboding market conditions.
Although some analysts find it surprising that Merrill Lynch has been able to secure its hold on the investing market, when looking at its position within the market, it is no wonder that this giant has managed to stay on top. “Most firms specialize, either in institutional business, catering to corporations, governments, and big investors like pension funds… or in selling stocks, bonds, and mutual funds to the broad public… Merrill Lynch not only straddles the two worlds but also dominates them both.
Taking stocks and bonds together, Merrill is the world’s largest underwriter, and it boasts the largest sales force in the business, blanketing America with 13,000 brokers serving 4. 5 million households. “3 As Merrill Lynch continues to grow in an otherwise stagnant business, the primary question that evolves is “how? ” How has Merrill Lynch managed to secure itself one of the world’s largest investment houses? In attempting to answer this question, we have investigated the history of Merrill Lynch from 1914 to the present day. Merrill Lynch was a successful second mover into the financial industry by targeting an unexploited niche market.
Merrill Lynch enjoyed a steep climb to the top of the industry due to their innovative use of marketing ability to expand into new global markets. While there were times where Merrill Lynch found misfits in their activities, they were able to correct the problems and learn from their mistakes. What truly stands out was their ability to adapt to the ever changing financial environment through their ability to balance flexibility and commitment. In the early 20th century productivity shocks and emerging markets worldwide created unparalleled growth of the US economy.
Amidst this great prosperity, the American public embarked on a fascination with the ever-booming stock market. In this period the entrance of over 1,000 new firms and a great increase in the variety of services and securities offered characterized the financial services sector. 4 Before, government and railroad bonds were almost exclusively the only securities issued to the public, however, during the 20s, securities such as common stock of domestic firms, foreign government securities, and overseas corporations became just as important.
In addition, the US capital market experienced an introduction to many new and sophisticated trading techniques on stocks, bonds and options. Much of that prosperity changed when the stock market crashed on October 24, 1929 sending the US economy into a downward spiral. Co-founder Charles Merrill moved to New York for the first time in 1907 to live close to his fianci?? e, Marie Sjostroms. Merrill had a total of over four years of undergraduate studies at Worcester University, Amherst College, and University of Michigan.
He started working in his prospective father-in-law’s textile manufacturing company as a credit manager. Of this unique opportunity Merrill said, “The two years I worked for Mr. Sjostroms turned out to be the equivalent of a university course in business in general, in credits, finance, cost accounting, and administration in particular. “6 During this time he met his future partner and long life friend Edmund Lynch. Lynch attended John Hopkins University and had his first work experience in Liquid Carbonic, a manufacturer of soda fountain equipment.
His job included tasks of bill collection and sales. In 1909, Merrill started working in the bond department at George H. Burr & Co. Shortly after his arrival Merrill convinced Lynch to join him at Burr & Co. as a securities salesman. This marked Lynch’s entrance into the financial industry, and with the help of Merrill, Lynch gained great knowledge of the securities market. It is here that both, Merrill and Lynch, had a first-hand view of the unethical practices in the industry.
In particular, Merrill was induced to sell high risk bond, today known as “junk bonds”, to investors without properly informing them of these risks, furthermore unscrupulous securities dealers invested the client’s capital for a different purpose than the one’s agreed with the client. These problems plaguing the industry were due to the lack of regulations or laws in security dealings. After a couple of years of more experience in the industry, Merrill and Lynch decided to start an investment bank that would base its success on creating customer trust through ethical practices.
In order to raise the desired $50,000 working capital Merrill offered a group of outside investors a limited partnership expiring in two years during which the company would pay 6% interest payment plus 10% participation in net profits. In the first four months of operation the company generated a notable net income of $6,700. Later the company was admitted as a member of the New York Stock exchange. In the following years the company exhibited growth both in size and recognition.
Their underwriting was focused on the automotive, retail, and chain stores. Among the largest projects undertaken by the company were Saxon Motors and Safeway stores. By the late 20s the companies co-founder, Charles Merrill anticipated the economic downturn and urged his customers to “take advantage of the present high prices. ” Being one of the few investment bankers to publicly show concerns about the “bubble” economy, Merrill Lynch enjoyed long lasting loyalty from customers who headed their warnings.