Merrill Lynch's Marauding Herd

The stockbroker introduces a financial shopping mall

Merrill Lynch & Co.'s thundering herd is off in search of greener pastures, and threatening to trample everything in its path. Not content to be the nation's largest stockbroker, the company is pawing its way into a variety of businesses, from real estate to insurance. The goal: to provide clients with a shopping mall of financial services.

The company seeks a piece of virtually every financial transaction a client makes. With Merrill Lynch's Cash Management Account, a customer can now use a VISA card or personal check against his investment account. As a member of its Sharebuilder Plan, he can buy fractions of a stock share, through a bank, with $10 a month or less. For the executive on the move, Merrill Lynch Relocation Management will find a new house, buy it through its network of real estate brokers, help arrange financing by an affiliated bank or savings and loan and insure the mortgage through yet another subsidiary.

The results to date have been bullish. Merrill Lynch maintains its traditional dominance in selling stocks and bonds, and is three times as large as its nearest competitor, E.F. Hutton. In addition, the firm last year took in twice as much from its other financial operations ($1.4 billion) as from its securities-trading business ($642 million). In the first half of 1980 alone, it earned $100.8 million, almost as much as in all of 1979.

The strategy of building an investment shopping mall was conceived a decade ago by the then president, now chairman, Donald Regan. Merrill Lynch's boss, whose background includes both the Cambridge Latin School and the Marine Corps, concluded that he wanted to free the firm from the vagaries of the stock market. Now the firm tries to provide customers with a range of financial services that it can keep selling even when the Dow Jones index is falling.

The most ambitious of these is real estate. Regan's strategy is to capture a customer when he buys a house, normally a person's first significant financial transaction. If the client is pleased, he is likely to come back later for other investments. To that end, Merrill Lynch has purchased local realty companies in five cities, and plans to own firms in the 50 largest U.S. markets by mid-1983.

The company's other new ventures are already thriving. The executive relocation operation, which was acquired in 1977, has 30% of that lucrative market. An insurance franchise business, in which it owns a minority interest, hopes to sign up 2,000 independent agencies by 1983.

Merrill Lynch's diversifications have kept the company and Regan the odd men out in Wall Street's clubby investment fraternity. Says the head of a competing firm: "I think Regan believes that big is better. Merrill Lynch gets by just because of its size. At other firms, it is talent that counts."

Some bankers are particularly resentful of Merrill Lynch's trampling ways. If the company were a bank, its assets would make it the 22nd largest in the country. Competing financiers argue that the firm has unfair advantages over them. Through an arrangement with Bank One of Columbus, Ohio, customers in California or New Jersey, for example, can open a money-market-fund account in their local Merrill Lynch office and then write checks or use a credit card against their balances in the Ohio bank. Federal regulations confine regular banks to doing business in the state where they are located.

Such criticism hardly deters Regan, who has his company focused on spreading out still more. The company has considered challenging American Express in traveler's checks and H & R Block in tax preparation. Says Regan: "Greater numbers of American households are gaining greater affluence than ever before, and they no longer want to rely on the time-honored financial vehicles, such as savings accounts, to harbor their assets." Some Wall Street experts believe that within a decade, a dozen national financial services, perhaps with names like Chase American Express or Citibank Hutton, will dominate the U.S. banking-and-investment business. Merrill Lynch's bulls want to be leading that stampede.

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